<PAGE> 1
SCHEDULE 14C INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(c)
OF THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Check the appropriate box:
<TABLE>
<S> <C>
/X/ Preliminary Information Statement / / Confidential, for Use of the Commission
Only (as permitted by Rule 14c-5(d)(2))
/ / Definitive Information Statement
</TABLE>
NORTH COAST ENERGY, INC.
- --------------------------------------------------------------------------------
Payment of Filing Fee (Check the appropriate box):
/x/ No filing fee required.
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14c-5(g).
/ / Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
NORTH COAST ENERGY, INC.
1993 CASE PARKWAY
TWINSBURG, OHIO 44087-2343
INFORMATION STATEMENT
PURSUANT TO REGULATION 14C PROMULGATED UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
This information statement, which is being mailed on or about
, 2000 to holders of record on April 4, 2000 of shares of common
stock and series A preferred stock of North Coast Energy, Inc., a Delaware
corporation, is being furnished in connection with the issuance of 9,600,000
shares of North Coast's common stock to Nuon International Projects, B.V.,
through a written consent of the holders of a majority of North Coast's
outstanding shares of common stock and series A preferred stock.
On March 27, 2000, Nuon elected to exercise its right under the
Non-Negotiable Subordinated Convertible Promissory Note (the "Note"), dated
March 17, 2000, between Nuon and North Coast, to exchange $24,000,000 in debt
owed to Nuon by North Coast for 9,600,000 shares of North Coast's common stock.
Approval by the holders of a majority of the issued and outstanding shares of
common stock and series A preferred stock is required by the terms of the Note
prior to the issuance of the 9,600,000 shares of common stock to Nuon.
The issuance of these 9,600,000 shares of North Coast's common stock to
Nuon will be approved, not less than twenty days following the mailing of this
information statement to shareholders of record at the close of business on
April 4, 2000, by a written consent to corporate action executed by Nuon, the
holder of more than a majority of the issued and outstanding shares of common
stock and series A preferred stock. Thus, this information statement is being
provided for your informational purposes only.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY.
OUTSTANDING STOCK AND VOTING RIGHTS
As of the record date, there were 5,579,587 shares of common stock and
22,641 shares of series A preferred stock issued and outstanding. Each share of
common stock entitles its holder to one vote and each share of series A
preferred stock entitles its holder to 2.3 votes.
<PAGE> 3
SECURITY OWNERSHIP OF
PRINCIPAL HOLDERS AND MANAGEMENT
The following table presents information with respect to the common stock,
owned on March 21, 2000, by: (1) each person known by North Coast to own
beneficially more than 5% of North Coast's outstanding common stock; (2) each
director of North Coast; (3) each of the executive officers of North Coast; and
(4) all directors and executive officers as a group, and the percentage of the
outstanding shares represented by that group.
<TABLE>
<CAPTION>
COMMON STOCK
----------------------------------
NATURE AND ADDRESS(1) AMOUNT AND NATURE OF PERCENT
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
--------------------- -------------------- --------
<S> <C> <C>
Garry Regan................................... 116,685 Shares 2.08%
Omer Yonel.................................... 5,000 Shares(2) *%
Jos J. M. Smits............................... 0 Shares *%
Cok van der Horst............................. 0 Shares *%
Carel W. J. Kok............................... 0 Shares *%
Nuon International Projects, B.V.............. 3,448,277 Shares 61.80%
Ralph L. Bradley.............................. 20,000 Shares(3) *%
C. Rand Michaels.............................. 8,285 Shares(4) *%
Range Resources Corp.......................... 634,475 Shares(5) 11.37%
All directors and executive officers as a 168,100 Shares(6) 3.01%
group (10 persons)..........................
</TABLE>
- ---------------
* Less than one percent
(1) Nuon's address is Utrechtsweg 68, 6812 AH Arnhem, The Netherlands. Range's
address is 125 State Route 43, Hartville, Ohio 44632.
(2) Includes 5,000 shares of common stock which Mr. Yonel could acquire upon the
exercise of immediately exercisable stock options which he holds.
(3) Includes 20,000 shares of common stock which Mr. Bradley could acquire upon
the exercise of immediately exercisable stock options which he holds.
(4) Includes 6,666 shares of common stock which Mr. Michaels could acquire upon
the exercise of immediately exercisable stock options which he holds.
(5) Includes 40,000 shares of common stock which may be acquired upon the
exercise of certain warrants to purchase common stock.
(6) Includes 43,800 shares of common stock which may be acquired by all
directors and executive officers as a group upon the exercise of immediately
exercisable stock options or warrants.
2
<PAGE> 4
ISSUANCE OF 9,600,000 SHARES OF NORTH COAST'S COMMON STOCK TO NUON
IN EXCHANGE FOR NORTH COAST'S DEBT TO NUON OF $24,000,000
On March 27, 2000, Nuon elected to exercise its right under the Note to
exchange $24,000,000 in debt owed to Nuon by North Coast for 9,600,000 shares of
North Coast's common stock. The issuance of these 9,600,000 shares of North
Coast's common stock to Nuon will be approved, not less than twenty days
following the mailing of this information statement to shareholders of record at
the close of business on April 4, 2000, by a written consent to corporate action
executed by Nuon, the holder of more than a majority of the issued and
outstanding shares of common stock and series A preferred stock. Approval by the
holders of a majority of the issued and outstanding shares of common stock and
series A preferred stock is required by the terms of the Note prior to the
issuance of the 9,600,000 shares of common stock to Nuon.
Through two subordinated notes, the convertible Note for $24,000,000 and a
second, non-convertible note for $48,500,000, Nuon agreed to provide $72,500,000
to North Coast to facilitate North Coast's purchase of all of the common stock
of Peake Energy, Inc. from Belden & Blake Corporation. On March 17, 2000, North
Coast acquired all of the outstanding common stock of Peake. The purchase price
for the Peake stock was $72,500,000, subject to certain post-closing
adjustments. Peake is an oil and gas exploration company headquartered in
Ravenswood, West Virginia, with operations in West Virginia, Kentucky, and
Virginia.
The cash paid in connection with the acquisition of all of the common stock
of Peake Energy, Inc. was derived from the convertible Note for $24,000,000 and
the non-convertible note for $48,500,000. Interest on both of these notes is
payable semi-annually and accrues at the applicable LIBOR rate. The principle
amount of each note is payable on February 28, 2015. The Note affords Nuon the
right, at its election, to convert the principle amount of the Note to shares of
North Coast's common stock at any time based upon an exchange price of $2.50 per
share. Any issuance of North Coast's common stock in connection with such
conversion election is subject to stockholder approval. Both notes are
subordinated to North Coast's senior debt. Nuon has the right to secure the
indebtedness considered by the notes by a lien on Peake's assets, subject to the
rights of the senior lender. North Coast agreed to grant Nuon registration
rights for shares of North Coast's common stock issued in any such conversion.
After this issuance, the percentage of North Coast's common stock beneficially
owned by Nuon will increase from approximately 62% to approximately 86%.
The arrangements with Nuon were negotiated by and between the management of
North Coast and the management of Nuon, and approved by all of the disinterested
directors on North Coast's board of directors. In addition, North Coast received
an opinion from an independent financial advisor as to the fairness of the
exchange of $24,000,000 of North Coast's debt to Nuon for 9,600,000 shares of
North Coast's common stock, valued at $2.50 per share. The opinion of the
independent financial advisor is attached to this Information Statement as
Exhibit A.
Financial information related to North Coast is incorporated into this
Information Statement by reference to North Coast's Quarterly Report on Form
10-Q for the quarter ended December 31, 1999 and North Coast's Annual Report on
Form 10-K for the year ended March 31, 1999, copies of which have been delivered
to stockholders with this Information Statement.
BY ORDER OF THE BOARD OF DIRECTORS
Thomas A. Hill, Secretary
3
<PAGE> 5
INDEX TO FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Introduction to selected historical and pro forma financial
data and information...................................... F-2
Selected historical and pro forma financial data and
information............................................... F-3 - F-4
Introduction to unaudited pro forma combined financial
statements................................................ F-5
Pro forma combined statement of operations -- North Coast
Energy, Inc............................................... F-6
Notes to pro forma combined statement of operations -- North
Coast Energy, Inc......................................... F-7
Pro forma combined balance sheet -- North Coast Energy,
Inc....................................................... F-8 - F-9
Balance sheets -- Peake Energy, Inc......................... F-10
Statements of operations -- Peake Energy, Inc............... F-11
Statements of cash flows -- Peake Energy, Inc............... F-12
Notes to unaudited financial statements -- Peake Energy,
Inc....................................................... F-13 - F-21
</TABLE>
F-1
<PAGE> 6
INTRODUCTION TO SELECTED HISTORICAL AND PRO FORMA
FINANCIAL DATA AND INFORMATION
The following selected historical and pro forma financial data and
information were derived from North Coast's (audited year end and unaudited
interim) and Peake Energy Inc.'s ("Peake") (unaudited) financial statements. The
financial data and information for North Coast and Peake are based on their year
ends of March 31 and December 31, respectively.
Peake's historical and the pro forma selected financial data and
information should be read in conjunction with Peake's and the pro forma
financial statements contained elsewhere in this information statement. Selected
financial data and information for Peake for years preceding the year ended
December 31, 1997 are not available.
F-2
<PAGE> 7
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA AND INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
-------------------------- -------------------------- --------------------------
MARCH 31, DECEMBER 31, MARCH 31, DECEMBER 31, MARCH 31, DECEMBER 31,
1999 1999 1998 1998 1997 1997
NORTH COAST PEAKE NORTH COAST PEAKE NORTH COAST PEAKE
----------- ------------ ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
HISTORICAL
Total revenues....... $13,942 $17,539 $ 8,590 $21,637 $ 9,665 $ 17,716
Depreciation,
depletion,
amortization and
other.............. 2,479 5,893 1,242 83,493 1,385 6,520
Net income (loss).... 870 (258) 262 (47,663) 292 1,092
Net income (loss)
applicable to
common stock....... 634 (258) (6) (47,663) (1,237) 1,092
Net income (loss) per
common share (basic
and diluted)....... 0.16 N/A -- N/A (0.75) N/A
Total assets......... 43,573 57,487 22,311 63,845 21,229 139,184
Long-term debt....... 21,494 -- 7,171 -- 10,721 --
Total stockholders'
equity............. 17,942 53,158 12,339 57,666 7,310 105,188
</TABLE>
F-3
<PAGE> 8
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA AND INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
----------------------------------------------------- --------------------------
DECEMBER 31, SEPTEMBER 30, MARCH 31, DECEMBER 31,
1999 1999 1999 1998
NORTH COAST PEAKE PRO FORMA NORTH COAST PEAKE
HISTORICAL HISTORICAL ADJUSTMENTS TOTAL HISTORICAL HISTORICAL
------------ ------------- ----------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
PRO FORMA
Total revenues.............. $ 8,514 $12,615 $ 21,129 $13,942 $ 21,637
Depreciation, depletion,
amortization and other.... 1,595 4,084 $ (140) 5,539 2,479 83,493
Net income (loss)........... (217) (337) 1,037 483 870 (47,663)
Net income (loss) applicable
to common stock........... (392) (337) 1,037 308 634 (47,663)
Net income (loss) per common
share (basic and
diluted).................. (0.08) N/A 0.02 0.16 N/A
Total assets at December 31,
1999...................... 51,061 60,525 14,209 125,795
Long-term debt at December
31, 1999.................. 20,390 48,500 68,890
Total stockholders' equity
at December 31, 1999...... 21,974 55,052 (31,352) 45,674
Book value per common share
(most recent balance sheet
date after liquidation
value of preferred stock)
at December 31, 1999...... 3.32 N/A (0.54) 2.78
<CAPTION>
YEAR ENDED
---------------------
PRO FORMA
ADJUSTMENTS TOTAL
----------- -------
<S> <C> <C>
PRO FORMA
Total revenues.............. $35,579
Depreciation, depletion,
amortization and other.... $(78,423) 7,549
Net income (loss)........... 51,194 4,401
Net income (loss) applicable
to common stock........... 51,194 4,165
Net income (loss) per common
share (basic and
diluted).................. 0.31
Total assets at December 31,
1999......................
Long-term debt at December
31, 1999..................
Total stockholders' equity
at December 31, 1999......
Book value per common share
(most recent balance sheet
date after liquidation
value of preferred stock)
at December 31, 1999......
</TABLE>
F-4
<PAGE> 9
INTRODUCTION TO UNAUDITED PRO FORMA COMBINED
FINANCIAL STATEMENTS
The accompanying unaudited pro forma combined financial statements give
effect to the March 17, 2000 purchase by North Coast of the common stock of
Peake Energy, Inc. ("Peake") for approximately $69.6 million. The purchase price
for the Peake stock was $72.5 million, subject to certain post-closing
adjustments. After considering such adjustments and intervening transactions
between the effective date and closing date, the Company estimates that, under
purchase accounting, the purchase cost of the transaction is approximately $69.6
million.
The unaudited pro forma combined statement of operations for the year ended
March 31, 1999 (which includes Peake based on Peake's year end of December 31,
1998) was prepared as if the transaction occurred on April 1, 1998, the
beginning of North Coast's fiscal year. The unaudited pro forma combined
statement of operations for the nine months ended December 31, 1999 (which
includes Peake based on the nine months ended September 30, 1999) was prepared
as if the transaction occurred on April 1, 1999, the beginning of North Coast's
fiscal year. The unaudited pro forma combined balance sheet as of December 31,
1999 (which includes Peake as of September 30, 1999) has been prepared as if the
transaction had occurred as of December 31, 1999.
This pro forma information is not necessarily indicative of future
consolidated results of operations or past operations and should be read in
conjunction with the separate historical statements and related footnotes of the
respective entities.
F-5
<PAGE> 10
NORTH COAST ENERGY INC. AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED DECEMBER 31, 1999
----------------------------------------------------
DECEMBER 31, SEPTEMBER 30,
1999 1999
NORTH COAST PEAKE PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS TOTAL
------------ ------------- ----------- -------
<S> <C> <C> <C> <C>
REVENUE:
Oil and gas production..... $5,590 $10,633 $16,223
Drilling revenues.......... -- -- --
Well operating,
transportation and
other.................... 2,207 1,982 4,189
Administrative and agency
fees..................... 717 -- 717
------ ------- ------ -------
8,514 12,615 21,129
COSTS AND EXPENSES:
Oil and gas production
expenses................. 2,356 3,421 $ (146)(a) 5,631
Drilling costs............. 384 -- 384
Oil and gas operations..... 1,213 185 1,398
Exploration costs.......... -- 611 (121)(a) 490
General and administrative
expenses................. 1,887 809 (580)(a) 2,116
Depreciation, depletion,
amortization, impairment
and other................ 1,595 4,084 (140)(b) 5,539
------ ------- -------
7,435 9,110 15,558
------ ------- -------
INCOME (LOSS) FROM
OPERATIONS................. 1,079 3,505 5,571
OTHER INCOME (EXPENSE)
Interest income............ 107 -- 107
Other...................... 2 -- 2
Interest expense........... (1,405) (4,000) 568(c) (4,837)
------ ------- -------
(1,296) (4,000) (4,728)
------ ------- -------
INCOME (LOSS) BEFORE
PROVISION (CREDIT) FOR
INCOME TAXES............... (217) (495) 843
PROVISION (CREDIT) FOR INCOME
TAXES...................... -- (158) 518(d) 360
------ ------- -------
NET INCOME (LOSS)............ $ (217) $ (337) $ 483
====== ======= =======
Net income (loss), applicable
to common stock (after
preferred dividends paid or
in arrears)................ $ (392) $ 308
====== =======
Basic and diluted income
(loss) per share........... $(0.08) $ 0.02
====== =======
Basic weighted average
shares..................... 4,898 9,600(e) 14,498
====== ====== =======
<CAPTION>
YEAR ENDED MARCH 31, 1999
----------------------------------------------------
MARCH 31, DECEMBER 31,
1999 1998
NORTH COAST PEAKE PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS TOTAL
----------- ------------ ----------- -------
<S> <C> <C> <C> <C>
REVENUE:
Oil and gas production..... $7,234 $ 17,597 $24,831
Drilling revenues.......... 3,686 -- 3,686
Well operating,
transportation and
other.................... 2,062 4,040 6,102
Administrative and agency
fees..................... 960 -- 960
------ -------- --------- -------
13,942 21,637 35,579
COSTS AND EXPENSES:
Oil and gas production
expenses................. 2,602 5,486 $ (215)(a) 7,873
Drilling costs............. 2,927 -- 2,927
Oil and gas operations..... 1,201 298 1,499
Exploration costs.......... -- 969 (126)(a) 843
General and administrative
expenses................. 2,109 1,012 (651)(a) 2,470
Depreciation, depletion,
amortization, impairment
and other................ 2,479 83,493 (78,423)(b) 7,549
------ -------- -------
11,318 91,258 23,161
------ -------- -------
INCOME (LOSS) FROM
OPERATIONS................. 2,624 (69,621) 12,418
OTHER INCOME (EXPENSE)
Interest income............ 83 -- 83
Other...................... 4 -- 4
Interest expense........... (1,841) (5,972) 1,509(c) (6,304)
------ -------- -------
(1,754) (5,972) (6,217)
------ -------- -------
INCOME (LOSS) BEFORE
PROVISION (CREDIT) FOR
INCOME TAXES............... 870 (75,593) 6,201
PROVISION (CREDIT) FOR INCOME
TAXES...................... -- (27,930) 29,730(d) 1,800
------ -------- -------
NET INCOME (LOSS)............ $ 870 $(47,663) $ 4,401
====== ======== =======
Net income (loss), applicable
to common stock (after
preferred dividends paid or
in arrears)................ $ 634 $ 4,165
====== =======
Basic and diluted income
(loss) per share........... $ 0.16 $ 0.31
====== =======
Basic weighted average
shares..................... 3,950 9,600(e) 13,550
====== ========= =======
</TABLE>
F-6
<PAGE> 11
NORTH COAST ENERGY INC. AND SUBSIDIARIES
NOTES TO PRO FORMA COMBINED STATEMENT OF OPERATIONS
PRO FORMA ADJUSTMENTS FOR THE PERIODS ENDED DECEMBER 31, 1999 AND
MARCH 31, 1999
The accompanying unaudited pro forma consolidated statement of income for
the periods ended December 31, 1999 and March 31, 1999 has been prepared as if
the transaction had occurred on April 1, 1999, the beginning of North Coast's
fiscal year, and reflects the following adjustments:
(a) To record the estimated adjustment to allocated corporate overhead from
Peake's parent net of the anticipated increase in overhead incurred by
North Coast related to the acquisition of Peake.
(b) To record the estimated adjustment to depreciation, depletion,
amortization, impairment and other expenses attributable to the
allocation of the purchase price using the successful efforts method of
accounting.
(c) To record the estimated adjustment to interest expense on the amount
borrowed for the Peake purchase of $72,500,000. The amount borrowed is
reduced after 60 days to reflect Nuon's election to convert $24,000,000
of the amount borrowed to North Coast Common stock. The loan with Nuon
is based upon a LIBOR plus rate totaling approximately 8.5% per annum.
A .25% per annum increase in the interest rate would affect the
interest expense by approximately $130,000 per year.
(d) To adjust the provision for taxes to reflect the estimated amount of
taxes on pro forma income from operations before taxes.
(e) To adjust the number of shares outstanding to reflect the issuance of
9.6 million shares of North Coast Common stock to Nuon for conversion
of $24 million of debt. The conversion price per share was $2.50.
F-7
<PAGE> 12
NORTH COAST ENERGY INC. AND SUBSIDIARIES
PRO FORMA COMBINED BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 1999
NORTH COAST PEAKE PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS TOTAL
------------ ------------- ----------- --------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and equivalents................... $ 5,422 $ 134 $ 2,574(f) $ 8,130
Accounts receivable:
Trade............................... 3,812 4,527 (858)(f) 7,481
Affiliates.......................... 115 -- 115
Inventory.............................. 251 352 (80)(f) 523
Deferred tax........................... 57 595 (595)(f) 57
Other.................................. 94 56 (43)(f) 107
-------- -------- --------
Total current assets........... 9,751 5,664 16,413
PROPERTY AND EQUIPMENT, at cost Property,
plant and equipment.................... 2,581 2,096 (840)(f) 3,837
Oil and gas properties (successful
efforts)............................ 47,387 135,579 (74,478)(f) 108,488
Pipelines.............................. 6,683 8,694 (3,012)(f) 12,365
-------- -------- --------
56,651 146,369 124,690
Less accumulated depreciation,
depletion, amortization and write
down................................ (17,052) (91,541) 91,541(f) (17,052)
-------- -------- --------
39,599 54,828 107,638
OTHER ASSETS............................. 1,711 33 1,744
-------- -------- --------
TOTAL ASSETS............................. $ 51,061 $ 60,525 $125,795
======== ======== ========
</TABLE>
F-8
<PAGE> 13
NORTH COAST ENERGY INC. AND SUBSIDIARIES
PRO FORMA COMBINED BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 1999
NORTH COAST PEAKE PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS TOTAL
------------ ------------- ----------- --------
<S> <C> <C> <C> <C>
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt.... $ 2,314 $ -- $ 2,314
Accounts payable -- trade............ 1,918 430 $ (328)(f) 2,020
Accrued expenses..................... 416 2,910 (478)(f) 2,848
Billings in excess of costs on
uncompleted contracts............. 2,946 -- 2,946
------- -------- --------
Total current liabilities.... 7,594 3,340 10,128
LONG-TERM DEBT......................... 20,390 -- 48,500(f)(g) 68,890
ACCRUED PLUGGING LIABILITY............. 737 -- 737
DEFERRED INCOME TAXES.................. 366 2,133 (2,133)(f) 366
STOCKHOLDERS' EQUITY
Series A, 6% Non-Cumulative
Convertible Preferred stock....... 1 -- 1
Series B, Preferred stock (net of
costs)............................ 2 -- 2
Common stock......................... 56 1 95(f)(g) 152
Additional paid-in capital........... 26,328 100,177 (76,573)(f)(g) 49,932
Retained earnings (deficit).......... (4,413) (45,126) 45,126(f) (4,413)
------- -------- --------
Total stockholders' equity... 21,974 55,052 45,674
------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY............................... $51,061 $ 60,525 $125,795
======= ======== ========
</TABLE>
PRO FORMA BALANCE SHEET ADJUSTMENTS FOR THE ACQUISITION OF PEAKE ENERGY, INC. AS
OF DECEMBER 31, 1999
The accompanying unaudited pro forma consolidated balance sheet as of
December 31, 1999 has been prepared as if the transaction had occurred on
December 31, 1999, North Coast's quarter end, and reflects the following
adjustments:
(f) To record assets and liabilities under the purchase method of
accounting based upon the purchase price of $69.6 million. Such
purchase price has been allocated to the assets and liabilities based
upon preliminary estimated fair value. The assets were purchased with
cash provided through a $72.5 million loan from Nuon.
(g) To record an adjustment for the conversion of $24 million in Nuon debt
to 9.6 million shares of North Coast Common stock. The price per share
of Common stock was $2.50.
F-9
<PAGE> 14
PEAKE ENERGY, INC.
BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents...................................... $ 108 $ 189
Accounts receivable -- trade, net......................... 3,669 3,849
Inventories............................................... 272 437
Deferred income tax....................................... 468 595
Other current assets...................................... 13 20
-------- --------
Total current assets.............................. 4,530 5,090
PROPERTY AND EQUIPMENT, at cost:
Oil and gas properties (successful efforts)............... 135,025 135,659
Gas gathering systems..................................... 8,752 8,676
Land, buildings, machinery and equipment.................. 2,096 2
-------- --------
145,873 146,417
Less accumulated depreciation, depletion, amortization.... 92,949 87,695
-------- --------
Property and equipment, net....................... 52,924 58,722
OTHER ASSETS
Other, net................................................ 33 33
-------- --------
$ 57,487 $ 63,845
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 102 $ 472
Accrued expenses.......................................... 2,432 3,574
-------- --------
Total current liabilities......................... 2,534 4,046
DEFERRED INCOME TAX......................................... 1,795 2,133
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY........................................ 53,158 57,666
-------- --------
$ 57,487 $ 63,845
======== ========
</TABLE>
F-10
<PAGE> 15
PEAKE ENERGY, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY
-----------
SIX MONTHS SIX MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, JUNE 30,
1999 1998 1997 1997
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
REVENUE:
Oil and gas production................. $14,810 $ 17,597 $ 8,138 $6,983
Gas gathering, marketing and oil field
sales and services.................. 1,543 2,722 1,308 1,287
Other.................................. 1,186 1,318 1 (1)
------- -------- ------- ------
17,539 21,637 9,447 8,269
COSTS AND EXPENSES:
Production expense..................... 3,288 3,880 1,710 1,157
Production taxes....................... 1,371 1,606 591 699
Gas gathering, marketing and oil field
sales and services.................. 267 298 164 151
Exploration expense.................... 772 969 431 428
General and administrative............. 924 801 273 347
Depreciation, depletion,
amortization........................ 5,893 10,486 4,764 1,756
Impairment of oil and gas properties
and other assets.................... 0 73,007 0 0
Franchise, property and other taxes.... 117 211 28 90
Interest expense....................... 5,376 5,972 2,828 660
------- -------- ------- ------
18,008 97,230 10,789 5,288
------- -------- ------- ------
INCOME (LOSS) BEFORE INCOME TAXES........ (469) (75,593) (1,342) 2,981
(Benefit) provision for income taxes... (211) (27,930) (557) 1,104
------- -------- ------- ------
NET INCOME (LOSS)........................ $ (258) $(47,663) $ (785) $1,877
======= ======== ======= ======
</TABLE>
F-11
<PAGE> 16
PEAKE ENERGY, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY
-----------
SIX MONTHS SIX MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, JUNE 30,
1999 1998 1997 1997
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................. $ (258) $(47,663) $ (785) $ 1,877
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation, depletion,
amortization........................ 5,893 10,486 4,764 1,756
Abandonment of oil and gas
properties.......................... 0 73,007 0 0
Exploration expense.................... 772 969 431 428
Deferred income taxes.................. (211) (27,930) (557) 1,104
Loss (gain) on sale of property and
equipment........................... 11 (251) 0 0
Deferred compensation and stock
grants.............................. 0 0 0 0
Change in:
Accounts receivable.................... 187 (1,893) (753) 13
Inventories............................ 123 (21) (52) (7)
Accounts payable and accrued
expenses............................ (1,512) (34) 102 809
------- -------- -------- -------
Net cash provided by operating
activities.......................... 5,005 6,670 3,150 5,980
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of businesses, net of cash
acquired............................ 0 (1,192) (9,672) (6,501)
Proceeds from property and equipment
disposals........................... 597 1,441 106 (41)
Exploration expense.................... (772) (969) (431) (428)
Additions to property and equipment.... (53) (5,609) (7,638) (1493)
------- -------- -------- -------
Net cash used by investing
activities.......................... (228) (6,329) (17,635) (8,463)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of debt to parent company..... (4,858) (286) 14,598 2,470
------- -------- -------- -------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................ (81) 55 113 (13)
Cash and cash equivalents at beginning of
period................................. 189 134 21 34
------- -------- -------- -------
Cash and cash equivalents at end of
period................................. $ 108 $ 189 $ 134 $ 21
======= ======== ======== =======
</TABLE>
F-12
<PAGE> 17
PEAKE ENERGY, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 1. BUSINESS DESCRIPTION AND BASIS OF PRESENTATION
On March 17, 2000, Belden & Blake Corporation ("BBC") sold all of the
issued and outstanding capital stock of Peake Energy, Inc. ("Peake"), its
wholly-owned subsidiary, to North Coast Energy, Inc. ("North Coast").
Peake operates in the oil and gas industry. Peake's principal business is
the production, development, acquisition and gathering of oil and gas reserves.
Sales of oil are ultimately made to refineries. Sales of natural gas are
ultimately made to gas utilities and industrial consumers in West Virginia and
Kentucky. The price of oil and natural gas has a significant impact on Peake's
working capital and results of operations.
On March 27, 1997, BBC signed a definitive merger agreement with TPG
Partners II, L.P. ("TPG"), a private investment partnership, pursuant to which
TPG and certain other investors acquired the BBC in an all-cash transaction
valued at $440 million (the "Acquisition"). Under the terms of the agreement,
TPG and such investors paid $27 per share for all common shares outstanding plus
an additional amount to redeem certain stock options held by directors and
employees. The transaction was completed on June 27, 1997 and for financial
reporting purposes has been accounted for as a purchase effective June 30, 1997.
The Acquisition resulted in a new basis of accounting reflecting estimated fair
values for assets and liabilities at that date. Accordingly, the financial
statements for the periods subsequent to June 30, 1997 are presented on BBC's
new basis of accounting, while the results of operations for the period ended
June 30, 1997 reflects the historical results of the predecessor company.
The accompanying financial statements pertain to the business which was
sold to North Coast, and are presented on a carve-out basis prepared from BBC's
historical accounting records. The financial statements include allocations of
interest expense, income taxes, accounts receivable, accounts payable and
accrued expenses as well as estimates of direct and indirect BBC corporate
administrative costs attributable to Peake. The methods by which such amounts
are attributed and allocated are deemed reasonable by management. All
intercompany transactions, including allocated expenses, are deemed to be paid
in the period recorded and are shown as a net change in the Belden & Blake
investment on the balance sheet.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES IN THE FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts. Significant estimates used in the
preparation of Peake's financial statements which could be subject to
significant revision in the near term include estimated oil and gas reserves.
Although actual results could differ from these estimates, significant
adjustments to these estimates historically have not been required.
CASH EQUIVALENTS
For purposes of the statements of cash flows, cash equivalents are defined
as all highly liquid debt instruments purchased with an initial maturity of
three months or less.
CONCENTRATIONS OF CREDIT RISK
Credit limits, ongoing credit evaluation and account monitoring procedures
are utilized to minimize the risk of loss. Collateral is generally not required.
Expected losses are provided for currently and actual losses have been within
management's expectations.
F-13
<PAGE> 18
PEAKE ENERGY, INC.
NOTES TO UNAUDITED FINANCIAL STATMENTS (CONTINUED)
INVENTORIES
Inventories of material, pipe and supplies are valued at average cost.
Crude oil and natural gas inventories are stated at the lower of average cost or
market.
PROPERTY AND EQUIPMENT
Peake utilizes the "successful efforts" method of accounting for its oil
and gas properties. Under this method, property acquisition and development
costs and certain productive exploration costs are capitalized while
non-productive exploration costs, which include certain geological and
geophysical costs, dry holes, expired leases and delay rentals, are expensed as
incurred. Capitalized costs related to proved properties are depleted using the
unit-of-production method. Depreciation, depletion and amortization of proved
oil and gas properties are calculated on the basis of estimated recoverable
reserve quantities. These estimates can change based on economic or other
factors. No gains or losses are recognized upon the disposition of oil and gas
properties except in extraordinary transactions. Sales proceeds are credited to
the carrying value of the properties. Maintenance and repairs are expensed, and
expenditures which enhance the value of properties are capitalized.
Unproved oil and gas properties are stated at cost and consist of
undeveloped leases. These costs are assessed periodically to determine whether
their value has been impaired, and if impairment is indicated, the costs are
charged to expense. During 1998, Peake recorded a $406,000 expense which
wrote-down unproved oil and gas properties to their estimated fair value.
Gas gathering systems are stated at cost. Depreciation expense is computed
using the straight-line method over 15 years.
Property and equipment are stated at cost. Depreciation of non-oil and gas
properties is computed using the straight-line method over the useful lives of
the assets ranging from 3 to 15 years for machinery and equipment and 30 to 40
years for buildings. When assets other than oil and gas properties are retired
or otherwise disposed of, the cost and related accumulated depreciation are
removed from the accounts, and any resulting gain or loss is reflected in income
for the period. The cost of maintenance and repairs is charged to income as
incurred, and significant renewals and betterments are capitalized.
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. If the
sum of the expected future undiscounted cash flows is less than the carrying
amount of the asset, a loss is recognized for the difference between the fair
value and the carrying amount of the asset. In performing the review for
long-lived asset recoverability during 1998, Peake recorded $68.9 million and
$3.6 million of impairments which wrote-down producing properties and other
assets, respectively, to their estimated fair value. Fair value was based on
estimated future cash flows to be generated by the assets, discounted at a
market rate of interest.
REVENUE RECOGNITION
Oil and gas production revenue is recognized as production and delivery
take place.
INCOME TAXES
Historically, Peake's results were included in the consolidated federal
income tax return filed by BBC. The income tax provision for each period
presented represents the current and deferred income taxes that would have
resulted if Peake's operations were a stand-alone taxable entity filing its own
income tax returns. Accordingly, the calculation of tax provisions and deferred
taxes necessarily require certain assumptions, allocations and estimates which
management believes are reasonable to reflect the tax reporting for Peake as a
stand-alone taxpayer.
F-14
<PAGE> 19
PEAKE ENERGY, INC.
NOTES TO UNAUDITED FINANCIAL STATMENTS (CONTINUED)
STOCK-BASED COMPENSATION
Peake measures expense associated with stock-based compensation under the
provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees."
BBC common stock held by Peake employees in BBC's 401k plan is subject to
variable plan accounting. The changes in share value are reported as adjustments
to compensation expense. The reduction in share value in 1999 and 1998 resulted
in a reduction in compensation expense of $111,000 and $46,000, respectively.
NOTE 3. RELATED PARTY TRANSACTIONS
For the purpose of these carve-out financial statements, payables and
receivables related to transactions between Peake and BBC are included as a
component of paid in capital.
BBC provided Peake with certain services including insurance, cash
management, tax, legal, computer systems and support, accounting and other
corporate functions. Charges for these services were allocated based on usage
and other methods that management believed to be reasonable and amounted to $1.3
million, $1.2 million and $486,000 for the successor company's years ended
December 31, 1999 and 1998 and six months ended December 31, 1997, respectively,
and $721,000 for the predecessor company's six months ended June 30, 1997. These
charges are included in production expense, exploration expense and general and
administrative expense.
BBC allocated interest expense to Peake based on relative asset value.
Interest expense allocated by BBC was $5.4 million, $6.0 million and $2.8
million for the successor company's years ended December 31, 1999 and 1998 and
six months ended December 31, 1997, respectively, and $660,000 for the
predecessor company's six months ended June 30, 1997.
NOTE 4. ACQUISITIONS
The following acquisitions were accounted for as purchase business
combinations. Accordingly, the results of operations of the acquired businesses
are included in Peake's statements of operations from the date of the respective
acquisitions.
During 1998, Peake acquired working interests in oil and gas wells in West
Virginia for approximately $1.1 million. Estimated proved developed reserves
associated with the wells totaled 1.2 Bcfe (Billion cubic feet of natural gas
equivalent) net to Peake's interest at the time of acquisition.
During 1997, Peake acquired working interests in oil and gas wells in West
Virginia for approximately $9.7 million for the successor company's six months
ended December 31, 1997 and $ 6.5 million for the predecessor company's six
months ended June 30, 1997. Estimated proved developed reserves associated with
the wells totaled 23.6 Bcf of natural gas and 4,886 Bbls of oil net to Peake's
interest at the time of the acquisitions.
The pro forma effects of 1999, 1998 and 1997 (predecessor and successor
periods) acquisitions were not material.
F-15
<PAGE> 20
PEAKE ENERGY, INC.
NOTES TO UNAUDITED FINANCIAL STATMENTS (CONTINUED)
NOTE 5. DETAILS OF BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1999 1998
------ ------
(IN THOUSANDS)
<S> <C> <C>
ACCOUNTS RECEIVABLE
Accounts receivable...................................... $1,110 $ 353
Allowance for doubtful accounts.......................... (59) (98)
Oil and gas production receivable........................ 2,618 3,594
------ ------
$3,669 $3,849
====== ======
ACCRUED EXPENSES
Accrued expenses......................................... $ 122 $ 378
Accrued drilling and completion costs.................... -- 471
Ad valorem and other taxes............................... 983 1,282
Compensation and related benefits........................ 227 331
Undistributed production revenue......................... 1,100 1,112
------ ------
$2,432 $3,574
</TABLE>
NOTE 6. LEASES
Peake leases certain equipment, vehicles and office space under
noncancelable agreements with lease periods of one to five years. Rent expense
amounted to $272,000, $229,000 and $142,000 for the successor company's years
ended December 31, 1999 and 1998 and six months ended December 31, 1997,
respectively, and $89,000 for the predecessor company's six months ended June
30, 1997. Future commitments under leasing arrangements were not significant at
December 31, 1999.
NOTE 7. TAXES
Income tax provisions and related assets and liabilities are determined on
a stand-alone basis (see Note 2). Provision (benefit) for estimated income taxes
(in thousands):
<TABLE>
<CAPTION>
PREDECESSOR
SUCCESSOR COMPANY COMPANY
--------------------------------- -----------
YEAR ENDED SIX MONTHS SIX MONTHS
DECEMBER 31, ENDED ENDED
----------------- DECEMBER 31, JUNE 30,
1999 1998 1997 1997
----- -------- ------------ -----------
<S> <C> <C> <C> <C>
CURRENT
Federal....................... $ -- $ -- $ -- $ --
State......................... -- -- -- --
----- -------- ----- ------
DEFERRED
Federal....................... (194) (25,662) (512) 1,015
State......................... (17) (2,268) (45) 89
----- -------- ----- ------
(211) (27,930) (557) 1,104
----- -------- ----- ------
Total................. $(211) $(27,930) $(557) $1,104
===== ======== ===== ======
</TABLE>
F-16
<PAGE> 21
PEAKE ENERGY, INC.
NOTES TO UNAUDITED FINANCIAL STATMENTS (CONTINUED)
The effective tax rate for continuing operations differs from the U.S.
federal statutory tax rate as follows:
<TABLE>
<CAPTION>
PREDECESSOR
SUCCESSOR COMPANY COMPANY
------------------------------ -----------
YEAR ENDED SIX MONTHS SIX MONTHS
DECEMBER 31, ENDED ENDED
-------------- DECEMBER 31, JUNE 30,
1999 1998 1997 1997
----- ----- ------------ -----------
<S> <C> <C> <C> <C>
Statutory federal income tax rate.......... 35.00% 35.00% 35.00% 35.00%
Increases (reductions) in taxes resulting
from:
State income taxes, net of federal tax
benefit............................... 2.40 2.00 2.20 2.00
Exercise of stock options and variable
plan accounting for stock............. 8.00 -- 4.40 --
Other, net............................... (0.40) (0.10) (0.10) --
----- ----- ----- -----
Effective income tax rate for the period... 45.00% 36.90% 41.50% 37.00%
===== ===== ===== =====
</TABLE>
Significant components of deferred income tax liabilities and assets are as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1999 1998
------- -------
<S> <C> <C>
Deferred income tax liabilities:
Property and equipment, net............................ $(3,088) $(2,998)
Other, net............................................. -- --
------- -------
Total deferred income tax liabilities.......... (3,088) (2,998)
Deferred income tax assets:
Accrued expenses....................................... 438 586
Inventories............................................ 9 9
Net operating loss carryforwards....................... 1,294 865
Other, net............................................. 20 --
------- -------
Total deferred income tax assets............... 1,761 1,460
------- -------
Net deferred income tax liability.............. $(1,327) $(1,538)
======= =======
Long-term liability...................................... $(1,795) $(2,133)
Current asset............................................ 468 595
------- -------
Net deferred income tax liability.............. $(1,327) $(1,538)
======= =======
</TABLE>
NOTE 8. EMPLOYEE BENEFIT PLANS
BBC has a non-qualified profit sharing arrangement, covering substantially
all employees of Peake, under which BBC contributes discretionary amounts
determined by the compensation committee of its Board of Directors. Amounts are
allocated to substantially all employees based on relative compensation. BBC
contributed $64,000, $161,000 and $74,000 to Peake employees for the successor
company's years ended December 31, 1999 and 1998 and six months ended December
31, 1997, respectively, and $74,000 for the predecessor company's six months
ended June 30, 1997 to the profit sharing plan. The 1999 amount was paid in
cash. For the 1998 and 1997 periods, one half was paid in cash and one half was
paid in shares of BBC's common stock contributed into each eligible employee's
401(k) plan account. Additional discretionary bonuses were also made.
BBC has a qualified defined contribution plan (a 401(k) plan) covering
substantially all of the employees of Peake. Under the plan, an amount equal to
2% of participants' compensation is contributed by BBC to the plan
F-17
<PAGE> 22
PEAKE ENERGY, INC.
NOTES TO UNAUDITED FINANCIAL STATMENTS (CONTINUED)
each year. Eligible employees may also make voluntary contributions which BBC
matches $.50 for every $1.00 contributed up to 6% of an employee's annual
compensation. Prior to January 1, 1998, BBC matched $.25 for every $1.00
contributed up to 6% of an employee's annual compensation. Retirement plan
expense amounted to $101,000, $92,000 and $41,000 for the successor company's
years ended December 31, 1999 and 1998 and six months ended December 31, 1997,
respectively, and $30,000 for the predecessor company's six months ended June
30, 1997.
BBC also has non-qualified deferred compensation plans which permit certain
Peake employees to elect to defer a portion of their compensation. Certain Peake
employees have also participated in BBC's non-qualified stock option plan.
NOTE 9. COMMITMENTS AND CONTINGENCIES
Peake is involved in various legal actions arising in the normal course of
business. In the opinion of management, the ultimate disposition of these
matters will not have a material adverse effect on the financial position of
Peake.
NOTE 10. SUPPLEMENTARY INFORMATION ON OIL AND GAS ACTIVITIES
The following disclosures of costs incurred related to oil and gas
activities are presented in accordance with SFAS 69.
<TABLE>
<CAPTION>
PREDECESSOR
SUCCESSOR COMPANY COMPANY
----------------------------- -----------
YEAR ENDED SIX MONTHS SIX MONTHS
DECEMBER 31, ENDED ENDED
------------- DECEMBER 31, JUNE 30,
1999 1998 1997 1997
---- ----- ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Acquisition costs
Proved properties......................... $ -- 1,143 $9,554 $6,501
Unproved properties....................... -- -- 118 --
Developmental costs......................... -- 3,507 3,112 406
Exploratory costs........................... 772 969 431 428
</TABLE>
PROVED OIL AND GAS RESERVES
Peake's proved developed and proved undeveloped reserves are all located
within the United States. Peake cautions that there are many uncertainties
inherent in estimating proved reserve quantities and in projecting future
production rates and the timing of development expenditures. In addition,
estimates of new discoveries are more imprecise than those of properties with a
production history. Accordingly, these estimates are expected to change as
future information becomes available. Material revisions of reserve estimates
may occur in the future, development and production of the oil and gas reserves
may not occur in the periods assumed, and actual prices realized and actual
costs incurred may vary significantly from those used. Proved reserves represent
estimated quantities of natural gas, crude oil and condensate that geological
and engineering data demonstrate, with reasonable certainty, to be recoverable
in future years from known reservoirs under economic and operating conditions
existing at the time the estimates were made. Proved developed reserves are
proved reserves expected to be recovered through wells and equipment in place
and under operating methods being utilized at the time the estimates were made.
The estimates of proved developed reserves have been reviewed by
independent petroleum engineers. The estimates of proved undeveloped reserves
were prepared by Peake's petroleum engineers and the December 31, 1998 and 1999
proved undeveloped reserves have been reviewed by independent petroleum
engineers.
F-18
<PAGE> 23
PEAKE ENERGY, INC.
NOTES TO UNAUDITED FINANCIAL STATMENTS (CONTINUED)
The following table sets forth changes in estimated proved and proved
developed reserves for the periods indicated:
<TABLE>
<CAPTION>
SUCCESSOR COMPANY PREDECESSOR COMPANY TOTAL
---------------------- ------------------------ -----------------------
OIL GAS OIL GAS OIL GAS
(BBLS) (MCF) (BBLS) (MCF) (BBLS) (MCF)
-------- ---------- --------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1996............ -- -- 1,313,050 56,721,683 1,313,050 56,721,683
Extensions and discoveries... -- 1,349,664 -- 650,739 -- 2,000,403
Purchase of reserves in
place...................... 4,886 16,727,227 -- 6,875,751 4,886 23,602,978
Sale of reserves in place.... -- -- -- -- -- --
The Acquisition.............. 981,989 64,672,245 (981,989) (64,672,245) -- --
Revisions of previous
estimates.................. (376,936) (8,806,085) (282,455) 2,359,732 (659,391) (6,446,353)
Production................... (47,243) (2,395,241) (48,606) (1,935,660) (95,849) (4,330,901)
-------- ---------- --------- ----------- --------- ----------
DECEMBER 31, 1997............ 562,696 71,547,810 -- -- 562,696 71,547,810
Extensions and discoveries... -- 2,533,903 -- 2,533,903
Purchase of reserves in
place...................... 2,395 1,182,083 2,395 1,182,083
Sale of reserves in place.... (1,061) (5,479,665) (1,061) (5,479,665)
Revisions of previous
estimates.................. (179,804) 4,570,426 (179,804) 4,570,426
Production................... (82,037) (5,645,167) (82,037) (5,645,167)
-------- ---------- --------- ----------- --------- ----------
DECEMBER 31, 1998............ 302,189 68,709,390 -- -- 302,189 68,709,390
Extensions and discoveries... -- -- -- --
Purchase of reserves in
place...................... -- -- -- --
Sale of reserves in place.... -- (427,188) -- (427,188)
Revisions of previous
estimates.................. 371,231 1,456,692 371,231 1,456,692
Production................... (71,141) (5,473,586) (71,141) (5,473,586)
-------- ---------- --------- ----------- --------- ----------
DECEMBER 31, 1999............ 602,279 64,265,308 -- -- 602,279 64,265,308
======== ========== ========= =========== ========= ==========
Proved developed reserves
DECEMBER 31, 1997............ 562,696 67,589,880 562,696 67,589,880
======== ========== ========= ==========
DECEMBER 31, 1998............ 302,189 66,623,360 302,189 66,623,360
======== ========== ========= ==========
DECEMBER 31, 1999............ 602,279 60,547,060 602,279 60,547,060
======== ========== ========= ==========
</TABLE>
Bbls -- Barrels Mcf -- Thousand cubic feet
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED OIL
AND GAS RESERVES
The following tables, which present a standardized measure of discounted
future net cash flows and changes therein relating to proved oil and gas
reserves, are presented pursuant to SFAS No. 69. In computing this data,
assumptions other than those required by the FASB could produce different
results. Accordingly, the data should not be construed as representative of the
fair market value of Peake's proved oil and gas reserves. The following
assumptions have been made:
- Future revenues were based on year-end oil and gas prices. Future price
changes were included only to the extent provided by existing contractual
agreements.
- Production and development costs were computed using year-end costs
assuming no change in present economic conditions.
F-19
<PAGE> 24
PEAKE ENERGY, INC.
NOTES TO UNAUDITED FINANCIAL STATMENTS (CONTINUED)
- Future net cash flows were discounted at an annual rate of 10%.
- Future income taxes were computed using the approximate statutory tax
rate and giving effect to available net operating losses, tax credits and
statutory depletion.
The standardized measure of discounted future net cash flows relating to
proved oil and gas reserves is presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Estimated future cash inflows (outflows)
Revenues from the sale of oil and gas............ $180,310 $173,618 $221,832
Production and development costs................. (70,651) (67,822) (84,030)
-------- -------- --------
Future net cash flows before income taxes.......... 109,659 105,796 137,802
Future income taxes................................ 24,343 25,646 38,142
-------- -------- --------
Future net cash flows.............................. 85,316 80,150 99,660
10% timing discount................................ 45,191 42,451 53,727
-------- -------- --------
Standardized measure of discounted future net cash
flows............................................ $ 40,125 $ 37,699 $ 45,933
======== ======== ========
</TABLE>
The principal sources of changes in the standardized measure of future net
cash flows are as follows (the successor and predecessor periods are combined in
1997 for purposes of this presentation):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1999 1998 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Beginning of year............................. $37,699 $45,933 $42,654
Sale of oil and gas, net of production
costs....................................... (11,569) (13,716) (12,254)
Extensions and discoveries, less related
estimated future development and production
costs....................................... -- 2,440 2,662
Purchase of reserves in place less estimated
future production costs..................... -- 796 17,644
Sale of reserves in place less estimated
future production costs..................... (386) (768) --
Revisions of previous quantity estimates...... 2,564 (1,428) (9,418)
Net changes in prices and production costs.... 4,768 (11,678) (2,057)
Change in income taxes........................ 1,915 4,732 900
Accretion of 10% timing discount.............. 5,139 6,436 6,199
Changes in production rates (timing) and
other....................................... (5) 4,952 (397)
------- ------- -------
End of year................................... $40,125 $37,699 $45,933
======= ======= =======
</TABLE>
NOTE 11. INDUSTRY SEGMENT FINANCIAL INFORMATION
Peake operates in one reportable segment, as an independent energy company
engaged in producing oil and natural gas; exploring for and developing oil and
gas reserves; acquiring and enhancing the economic performance of producing oil
and gas properties and gathering natural gas for delivery to intrastate and
interstate gas transmission pipelines. The Company's operations are conducted
entirely in the United States.
F-20
<PAGE> 25
PEAKE ENERGY, INC.
NOTES TO UNAUDITED FINANCIAL STATMENTS (CONTINUED)
MAJOR CUSTOMERS
Sales of oil and gas are ultimately made to refineries, gas utilities,
industrial customers and natural gas brokers. Gas sales to two customers each
exceeded 10% of total revenue during the year ended December 31, 1999 which
amounted to $6.1 million and $2.2 million. Two customers that exceeded 10% of
total revenue during the year ended December 31, 1998 amounted to $9.4 million
and $2.2 million. One customer exceeded 10% of total revenue during the
successor company's six months ended December 31, 1997 which amounted to $4.8
million and during the predecessor company's six months ended June 30, 1997
which amounted to $4.8 million.
NOTE 12. SALE OF TAX CREDIT PROPERTIES
In March 1998, Peake sold certain interests that qualify for the
nonconventional fuel source tax credit. The interests were sold for
approximately $695,000 in cash and a volumetric production payment under which
100% of the cash flow from the properties will go to Peake until approximately
10.2 Bcf of gas has been produced and sold. In addition to receiving 100% of the
cash flow from the properties, Peake will receive quarterly incentive payments
based on production from the interests. Peake has the option to repurchase the
interests at a future date.
NOTE 13. SUBSEQUENT EVENTS
On March 17, 2000, BBC sold the stock of Peake to North Coast Energy, Inc.
("North Coast"), an independent oil and gas company, with an effective date of
January 1, 2000. The sale included substantially all of BBC's oil and gas
properties in West Virginia and Kentucky. The sale resulted in net proceeds of
approximately $69 million.
At December 31, 1999, using SEC pricing parameters Peake had proved
developed reserves of approximately 64.2 Bcfe and proved undeveloped reserves of
approximately 3.7 Bcfe. Peake's reserves represented 20.2% of BBC's total proved
reserves.
F-21
<PAGE> 26
EXHIBIT A
March 17, 2000
NORTH COAST ENERGY, INC.
1993 Case Parkway
Twinsburg, OH 44087
Attention: Board of Directors
Dear Sirs:
You have requested our opinion, as of the date hereof, as to the fairness,
from a financial point of view, to stockholders of North Coast Energy, Inc., a
Delaware corporation ("North Coast"), of the proposed financing transaction
("Financing") by Nuon International Projects, b.v. into North Coast Energy, Inc.
The terms of the Financing are set forth in the Term Sheet, and the subsequent
Promissory Notes. It has been represented to us that the legal form of
agreement(s) by and between North Coast and Nuon International Projects, b.v.
are the same as those that will be executed between the parties.
C. K. Cooper & Company, Inc., as part of its investment banking services,
is regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, corporate restructurings, negotiated
underwritings, secondary distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes. We are
acting as financial advisor to the Board of Directors of North Coast in
connection with the Financing, and will receive a fee for our services. In the
ordinary course of business, C. K. Cooper & Company, Inc. and its affiliates may
at any time hold long or short term positions, and may trade or otherwise effect
transactions as principal or for the accounts of customers, in debt or equity
securities or options on securities of North Coast.
It should be noted that at this time, Nuon International Projects, b.v. and
its affiliates own a controlling portion of North Coast Energy, Inc. and as a
result this Financing will be a related-party transaction. Furthermore, we have
been able to review and document the series of events which has resulted in the
current terms of the Financing proposed in the Letter of Intent between the two
parties. Under the terms of this Agreement, Nuon International Projects, b.v.
will loan $72.5 million in the form of subordinated debt, paying interest at
libor + 230 basis points for a term of 15 years. Upon approval of a majority of
the Company's shareholders following the filing and finalization of a Form 14C
Information Statement with the SEC, Nuon International Projects, b.v. shall be
permitted to exchange $24 million of the Principal Sum into 9,600,000 shares of
common stock of the Company, valued at $2.50 per share.
You have asked us to render our opinion as to whether the Financing is
fair, from a financial point of view, to the stockholders of North Coast Energy.
In the course of our analyses for rendering this opinion, we have:
1. reviewed the Term Sheet dated, March 8, 2000;
2. reviewed the Non-Negotiable Subordinated Convertible Promissory Note in
the form of the draft dated March 9, 2000 in the amount of $24,000,000;
<PAGE> 27
NORTH COAST ENERGY, INC.
3/17/00
Page 2 OF 3
3. reviewed a copy of the Registration Rights Agreement;
4. reviewed the Non-Negotiable Subordinated Promissory Note in the form of
the draft dated March 9, 2000 in the amount of $48,500,000;
5. reviewed the Subordination Agreement between North Coast Energy, Inc.,
Nuon International Projects, b.v. and ING (U.S.) Capital LLC;
6. reviewed the Stock Purchase Agreement in the form of a draft dated,
March 2, 2000;
7. reviewed North Coast Energy's Annual Report to Stockholders and its
Annual Reports on Form 10-K for the fiscal years ended March 31, 1996
through 1999; and its Quarterly Reports on Form 10-Q for the periods
ending June 30, September 30 and December 31, 1999;
8. reviewed sufficient market data to determine the trading range of
common shares of North Coast Energy, Inc. from the period of January 5,
1999 through February 22, 2000 including high, low and closing prices
of each date in that period.
9. met with certain members of North Coast Energy's senior management to
discuss this Financing, and the timeline of events during the Period of
October 1999, through February, 2000.
10. reviewed factors, relating to recent transactions of a similar nature,
including recent financing activities of companies which we deemed
generally comparable to North Coast Energy, as well as current
financial terms associated with such transactions;
11. reviewed historical stock prices and trading volumes of the common
shares of North Coast Energy, and
12. conducted such other studies, analysis, inquiries and investigations as
we deemed appropriate.
In the course of our review we have relied upon and assumed, without
independent verification, the accuracy, and completeness of the financial and
other information provided to us by North Coast Energy, and we have further
relied upon the assurances of management that they are unaware of any facts that
would make the information provided to us incomplete or misleading. In arriving
at our opinion, we have not performed any independent evaluations or appraisals
of the properties, assets or facilities of North Coast Energy.
During the course of our review, we completed three separate valuation
models, including;
a. Historical Stock Trading Analysis;
b. Fundamental Valuation Analysis;
c. Comparative Transaction Analysis;
Based on the foregoing, and the results of our analysis, which is provided
for in detail in the accompanying Valuation Study prepared by our firm, it is
our opinion that the Financing relative to the $2.50 share price is fair, from a
financial point of view, to the stockholders of North Coast Energy as it relates
to the investment by Nuon International Projects, b.v. outlined in the legal
agreements reviewed by our firm.
<PAGE> 28
NORTH COAST ENERGY, INC.
3/17/00
Page 3 OF 3
Our opinion is based upon market, economic and other conditions as they
exist and can be evaluated as of the date of this letter. C. K. Cooper &
Company, Inc. consents to the inclusion of the text of this Opinion in any
notice, proxy statement or appropriate disclosure to the public common
shareholders of North Coast Energy, Inc. that North Coast Energy, Inc. is
required by law to make, or include in documents filed, with the Securities and
Exchange Commission.
Subject to the foregoing and based upon our experience as investment
bankers, the matters described above and other factors we deemed relevant, we
are of the opinion that as of the date hereof, the Financing relative to the
$2.50 share price is fair from a financial point of view.
Very truly yours,
C. K. COOPER & COMPANY, INC.
By: /s/ Alexander G. Montano
Managing Director
