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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 17, 2000
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North Coast Energy, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 0-18691 34-1594000
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(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
1993 Case Parkway, Twinsburg, Ohio 44087-2343
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(Address of principal executive offices) (Zip Code)
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(Former Name or Former Address, if Changed Since Last Report)
Registrant's telephone number, including area code: (330) 425-2330
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On March 17, 2000, the Company acquired Peake Energy, Inc. ("Peake")
through a purchase of all of Peake's outstanding capital stock (the
"Acquisition") from Belden & Blake Corporation ("BBC"). The Acquisition was
consummated pursuant to a Stock Purchase Agreement dated March 17, 2000 between
the Company and BBC, with an effective date of January 1, 2000.
The purchase price for the Peake stock was $72.5 million subject to
various adjustments and escrowed amounts. The Company paid the purchase price in
full in cash at closing, with approximately $5,126,000 being deposited in escrow
pending the receipt of certain consents.
The purchase price was determined through arm's-length negotiation
between the Company and BBC and was based upon the Company's valuation of
Peake's business and assets. There were no material relationships between the
Company, its officers, directors or affiliates, and BBC or its officers,
directors and affiliates.
The cash paid in connection with the Acquisition was derived from loans
which the Company obtained from Nuon International Projects B.V., the Company's
majority stockholder. On March 17, 2000, Nuon loaned $72.5 million to the
Company in the form of a $48.5 million Non-Negotiable Subordinated Promissory
Note and a $24.0 million Non-Negotiable Subordinated Convertible Promissory
Note. Interest on both Notes is payable semi-annually and accrues at the
applicable LIBOR Rate. The principal amount of each Note is payable on February
28, 2015. The Convertible Note affords Nuon the right, at its election, to
convert the principal amount of the Note to shares of the Company's common stock
at any time based upon an exchange price of $2.50 per share. Any issuance of
Company stock in connection with such a conversion election is subject to
stockholder approval. Both Notes are subordinated to the Company'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. The Company
agreed to grant Nuon registration rights for shares issued in the conversion.
BUSINESS OF PEAKE. Peake owns properties in West Virginia, Kentucky
and Virginia. These properties consist of approximately 1,900 wells and in
excess of 900 miles of natural gas gathering lines.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED. Pursuant to
Item 7(a)(4) of Form 8-K, the Company will file the required financial
statements of the acquired business by amendment as soon as is practicable, but
not later than 60 days after the date on which this Current Report on Form 8-K
must be filed.
(b) PRO FORMA FINANCIAL INFORMATION. Pursuant to Item 7(a)(4)
of Form 8-K, the Company will file the required pro forma financial information
by amendment as soon as is
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practicable, but no later than 60 days after the date on which this Current
Report on Form 8-K must be filed.
(c) EXHIBITS.
2.1 Stock Purchase Agreement, dated March 17, 2000,
between North Coast Energy, Inc. and Belden & Blake
Corporation.
4.1 Non-Negotiable Subordinated Promissory Note.
4.2 Non-Negotiable Subordinated Convertible Promissory
Note.
99.1 Press Release dated March 20, 2000.
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SIGNATURE
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Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
NORTH COAST ENERGY, INC.
Date: March 22, 2000 By: /s/ Tom Hill
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Tom Hill, Secretary
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EXHIBIT INDEX
EXHIBIT DESCRIPTION OF EXHIBIT
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2.1 Stock Purchase Agreement, dated March 17, 2000,
between North Coast Energy, Inc. and Belden & Blake
Corporation.
4.1 Non-Negotiable Subordinated Promissory Note.
4.2 Non-Negotiable Subordinated Convertible Promissory
Note.
99.1 Press Release dated March 20, 2000.
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Exhibit 2.1
EXECUTION COPY
STOCK PURCHASE AGREEMENT
THIS AGREEMENT (this "Agreement") is entered into effective as of the
1st day of January, 2000 (the "Effective Date"), between BELDEN & BLAKE
CORPORATION, an Ohio corporation with its principal office at 5200 Stoneham
Road, North Canton, Ohio 44720 ("Seller"), and North Coast Energy, Inc., a
Delaware corporation with its principal office at 1993 Case Parkway, Twinsburg,
Ohio 44087 ("Buyer").
WITNESSETH THAT:
WHEREAS, Seller is the owner of all the issued and outstanding shares
of capital stock of Peake Energy, Inc., a Delaware corporation ("PEI"), and
WHEREAS, Seller desires to sell and Buyer desires to purchase all of
the issued and outstanding shares of capital stock of PEI.
NOW, THEREFORE, in consideration of the premises, agreements and
covenants contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by Seller and Buyer,
and in reliance upon the mutual representations, warranties, covenants and
agreements contained herein, Seller and Buyer agree, upon the terms and subject
to the conditions contained herein, as follows:
ARTICLE I
PURCHASE AND SALE
1.1 AGREEMENT TO SELL AND PURCHASE. Upon the terms and subject to the conditions
set forth in this Agreement, Seller agrees to sell to Buyer, and Buyer agrees to
purchase from Seller, all the issued and outstanding shares of capital stock of
PEI (the "Stock") for the price of $72,500,000.00 (the "Purchase Price")
adjusted as provided in Section 1.3 (as so adjusted, the "Adjusted Purchase
Price").
1.2 ESCROW DEPOSIT. Buyer, Seller and the Escrow Agent have entered into an
Escrow Agreement of even date herewith (in the form of Exhibit A hereto)
providing for the payment of certain escrowed amounts by the Escrow Agent in
accordance with the provisions of Section 5.4 of this Agreement.
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1.3 PURCHASE PRICE ADJUSTMENTS.
(a) The Purchase Price shall be adjusted downward by (i) the amount of
cash dividends and other cash distributions, transfers or payments of any kind
(including, without limitation, fees) received by Seller, directly or
indirectly, from PEI in excess of the aggregate amount of cash disbursements
paid by Seller on behalf of PEI from Seller's funds and excluding any costs or
expenses associated with this transaction from January 1, 2000 through the
Closing Date (the "Adjustment Period"), (ii) the aggregate amount of the
adjustments to the Purchase Price made pursuant to Section 5.3(iii) and (iii)
the amount by which PEI's Net Working Capital (as defined below) as shown on the
December 31, 1999 audited balance sheet of PEI is less than $1,885,000. For
purposes of this Agreement, the term "Net Working Capital" of PEI will be
determined by subtracting (A) the sum of Accounts Payable, Accrued Expenses and
any liabilities of PEI ("Liabilities") from (B) the sum of the cash and cash
equivalents, accounts receivable (net), inventories and other current assets of
PEI ("Assets"), in each case excluding Assets which will not become the property
of PEI or Liabilities which will be assumed by Seller.
"Other current assets" include accrued revenues, prepaid expenses and deposits.
Assets to be included in the Net Working Capital calculation at December 31,
1999 will be Assets of a similar nature to those included in the Net Working
Capital calculation at August 31, 1999 ($1,885,000). Such Assets are to be
accounted and classified in a similar manner to those Assets included in the Net
Working Capital calculation at August 31, 1999. Any assets included in the Net
Working Capital at December 31, 1999 that are of dissimilar nature to those
Assets included in the Net Working Capital at August 31, 1999 can be included at
the extent they are offset by Liabilities of a nature not previously included in
the August 31, 1999 calculation.
(b) The Purchase Price shall be adjusted upward by (i) the amount of
cash contributed to PEI by Seller during the Adjustment Period, (ii) the
aggregate amount of cash disbursements paid by Seller on behalf of PEI from
Seller's funds in excess of the amount of cash distributions, transfers or
payments received by Seller, directly or indirectly, from PEI during the
Adjustment Period, and (iii) the amount by which PEI's Net Working Capital as
shown on the December 31, 1999 audited balance sheet of PEI exceeds $1,885,000.
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(c) Any adjustments proposed in (a) or (b) above will be only in
accordance with such payments by or contributions to or on behalf of PEI as
accurately and fully disclosed to Buyer in accordance with Section 6.1(g) or as
properly determined in accordance with Section 5.3(iii) and, where applicable,
Section 5.4.
1.4 ESTIMATE OF PURCHASE PRICE. No later than five (5) days prior to the Closing
Date, Seller shall prepare and deliver to Buyer an estimate of the adjustments
to the Purchase Price to be made pursuant to Section 1.3. Such estimate shall be
accompanied by a worksheet setting forth in reasonable detail each of the
adjustments required by Section 1.3 and the net adjustment. If Buyer has not
given Seller notice of any objections to this estimate of adjustments at least
one (1) day prior to the Closing Date, then the Purchase Price will be adjusted
in accordance with such estimate. If the Buyer objects to Seller's estimate, the
parties will negotiate in good faith to resolve their objections prior to
Closing. If the parties are unable to resolve such objections prior to the
Closing Date, the net adjustment shall be the average of the net adjustments
proposed by Buyer and Seller. The Purchase Price as adjusted in accordance with
this Section 1.4 is hereinafter referred to as "Estimated Purchase Price."
1.5 SETTLEMENT STATEMENT.
(a) Within ninety (90) days following the Closing, Buyer and Seller
shall jointly prepare a final statement (the "Settlement Statement") setting
forth adjustments to be made to the Purchase Price pursuant to Section 1.3. The
Settlement Statement is intended to reflect the resolution of proposed Purchase
Price adjustments pending pursuant to Section 5.4 at the time of Closing or
claims by either Seller or Buyer with respect to the accuracy of adjustments
previously made pursuant to Section 1.3(a) or (b).
(b) If Buyer and Seller shall be unable to agree on the Settlement
Statement within such ninety (90) day period, a nationally or regionally
recognized public accounting firm mutually acceptable to Buyer and Seller shall
be engaged to make its determination of the amount in dispute (and only such
amount). Each party shall bear and pay one-half of the fees and other costs
charged by such accounting firm.
(c) If any accounting firm is engaged as provided in this Section 1.5,
Seller and Buyer agree to provide such accounting
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firm with all books, records and other information relevant to the determination
of the amount in dispute. Such accounting firm shall be instructed to make such
determination in accordance with the provisions of this Agreement as soon as
practicable. The final determination of any disputed adjustments to the Purchase
Price made pursuant to this Section 1.5 shall be binding on the parties hereto.
(d) The amount of the difference between the Estimated Purchase Price
and the Adjusted Purchase Price, together with interest thereon at a rate of ten
percent (10%) per annum from the Closing Date to the date of payment thereof,
shall be paid by the appropriate party to the party to whom it is owed within
five (5) business days after its final determination in immediately available
funds.
1.6 ALLOCATION OF PURCHASE PRICE. Seller and Buyer agree that the Purchase Price
shall initially be allocated among the assets of PEI as set forth in Schedule
1.6. Such allocations shall be modified after the Closing to reflect all
adjustments to the Purchase Price made pursuant to Section 1.3 (such allocations
are referred to as "Allocated Values").
ARTICLE II
CLOSING
2.1 TIME AND PLACE OF CLOSING. The consummation of the transactions contemplated
hereby (the "Closing") shall be held at the offices of Seller at 11:00 a.m.
local time, on March 17, 2000 or at such other place, time or date as the
parties may mutually agree. The date upon which Closing actually occurs is
referred to herein as the "Closing Date".
2.2 CLOSING OBLIGATIONS OF SELLER. At the Closing, Seller shall deliver to Buyer
stock certificates for the Stock duly endorsed for transfer to Buyer or
accompanied by stock powers duly executed in blank and all other documents,
instruments and writings required to be delivered by Seller at the Closing
pursuant to the terms of this Agreement including, without limitation, those
items referred to in Section 7.2(a), (b), (e) and (i).
2.3 CLOSING OBLIGATIONS OF BUYER. At the Closing, Buyer shall pay to Seller an
amount equal to the Estimated Purchase Price by wire transfer in federal or
other immediately available funds to an account of Seller (which account shall
be designated
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in writing by Seller to Buyer at least one (1) business day prior to the Closing
Date), together with all other documents, instruments and writing required to be
delivered by Buyer to Seller at the Closing pursuant to the terms of this
Agreement.
2.4 DELIVERY OF RECORDS. On the Closing Date, Seller will deliver or cause to be
delivered to Buyer at the offices of PEI in Ravenswood, West Virginia or at the
place of Closing, the minute books and stock record books of PEI, all originals
and copies of agreements, documents, personal computer files (including all
personal computer-generated disks, diskettes and tapes), maps, books, records
and files not then in the possession of PEI relating to the business and
operations of PEI prior to the Closing Date, including, without limitation, all
land, lease, division and transfer order, prospect and title files and records
and a copy of the land records software and source code (known as the "Peake
Land System"), geological and seismic records (including any seismic records
held in the name of Seller which relate to PEI properties), production records,
accounting records (except accounting records for periods prior to the Closing
date), copies of AS 400 data files, engineering records and data, logs, core
data, pressure data, decline curve and related data, to the extent and only to
the extent any of the foregoing relate to the business and operations of PEI
prior to the Closing Date (as so limited and excluding information described in
(b) below, the "Records"), subject to the following:
(a) Seller may retain the originals of all Records that contain
information relating to PEI but principally relate to Seller
or its affiliates other than PEI (with Buyer to have access
thereto), and Seller may retain copies of all Records that
contain information relating to Seller or its Affiliates other
than PEI but principally relate to PEI;
(b) Seller may retain all information prepared in connection with
the sale of the Stock, including, without limitation, offers
received from prospective purchasers of the Stock and any
information relating to such offers, and Buyer shall not be
entitled to copies thereof or access thereto;
(c) Seller may retain originals of all consolidating financial
information and all other accounting records of PEI prepared
or used in connection with the preparation of financial
statements of Seller or its
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affiliates or the preparation and filing of income tax
returns.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer, as follows:
3.1 ORGANIZATION AND AUTHORITY OF SELLER. Seller is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Ohio. Seller has all requisite corporate power and authority to execute and
deliver this Agreement and to perform its obligations under this Agreement. The
execution and delivery of this Agreement by Seller and the performance of the
transactions contemplated hereby by Seller have been duly and validly authorized
by the Board of Directors of Seller and by any other corporate action required
of Seller. This Agreement has been duly executed and delivered by Seller and
constitutes the valid and binding obligation of Seller, enforceable against
Seller in accordance with its terms.
3.2 CAPITALIZATION OF PEI. (a) The authorized share capital of PEI consists
solely of ten (10) shares of common stock, par value $100 per share, all of
which are issued and outstanding. Except as set forth in Schedule 3.2(a) all of
the issued and outstanding shares of PEI are (a) duly authorized, validly
issued, fully paid and nonassessable, (b) owned beneficially and of record by
Seller free and clear of all mortgages, pledges, security interests, liens or
encumbrances of any kind and (c) not subject to any voting agreements, buy-sell
agreements, options or rights of first purchase agreements or other agreements
relating to the voting, transfer or any right to purchase any such shares. There
are no subscriptions, options, convertible securities, warrants, calls,
conversion rights or other securities granting rights to purchase or otherwise
acquire any securities of PEI or any commitments or agreements of any character
obligating Seller or PEI to issue or transfer any such securities. Seller has
full power and authority to sell and transfer the Stock to Buyer. There are no
outstanding contractual obligations of Seller or PEI to purchase, redeem or
otherwise acquire any of the shares of Stock. PEI has no subsidiaries.
(b) PEI does not own or have any contract or agreement to acquire any
equity securities or other securities of any person
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or any direct or indirect equity or ownership interest in any other business.
Except as set forth in Schedule 3.2(b), PEI is not a partner in any partnership
or a party to any joint venture.
3.3 CORPORATE EXISTENCE AND QUALIFICATION OF PEI. PEI is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and has all requisite corporate power and authority to own, operate
and lease its properties and to carry on its business as currently conducted.
Seller has delivered to Buyer copies of the Certificate of Incorporation and
Bylaws of PEI, as currently in effect. PEI is duly qualified as a foreign
corporation in good standing in each jurisdiction in which the conduct of its
business or its ownership or leasing of property makes such qualification
necessary under applicable law, which jurisdictions are identified on Schedule
3.3.
3.4 NO DEFAULT OR CONSENTS. Except as set forth in Schedule 3.4, neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated herein will:
(a) conflict with or result in a breach, default or violation of
the certificate of incorporation or bylaws of Seller of PEI;
(b) entitle any person to exercise any preferential purchase
right, option to purchase or similar right with respect to any
of the assets or properties of PEI;
(c) except for compliance with the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and
regulations promulgated thereunder (the "HSR Act"), conflict
with or result in a breach, default or violation of, or
require any third party consent with respect to, any
agreement, document, instrument, judgment, decree, order,
governmental permit, certificate or license to which PEI is a
party or to which PEI is subject or by which any of its
properties or assets are bound;
(d) result in the creation of any lien, charge or other
encumbrance upon any of the assets or properties of PEI; or
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(e) except for compliance with the HSR Act and the periodic
reporting obligations of Seller under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), require Seller
or PEI to obtain any waiver, consent, approval, clearance or
authorization of, or to make any registration, declaration or
filing with, any governmental authority.
3.5 OIL AND GAS WELLS.
(a) PEI owns interests, either directly or as joint venturer, in the
producing oil or gas wells listed and described in Schedule 3.5(a) (the "Wells",
in the oil and gas leases upon which the Wells are located described in Schedule
3.5(b) (the "Leases") or on the fee interests described in Schedule 3.5(c) (the
"Fee Interests"). For purposes of this Agreement, any reference to Leases also
will include the Fee Interests except as otherwise provided.
(b) Schedule 3.5(a) accurately sets forth the name and location of each
Well, the applicable identification and permit number, and the Net Revenue
Interest and Working Interest of PEI therein. "Net Revenue Interest" means the
percentage of production from a well which PEI is entitled to receive as a
result of its interest in a Lease which pertains to such Well. "Working
Interest" means PEI's percentage share of all costs of drilling, equipping and
operating a Well. PEI is being credited on a current basis for the proceeds of
production from each Well in an amount not less than the Net Revenue Interest of
PEI therein, and is currently paying costs and expenses relating to each Well
not in excess of the Working Interest of PEI therein.
(c) The Wells have been drilled and completed within the boundaries
specified in any applicable permit or within the limits otherwise permitted by
contract or law and in accordance with the provisions of the Leases applicable
thereto. All Wells on the Leases have been drilled, completed and operated in
substantial compliance with all applicable laws (other than Environmental Laws),
rules, regulations, permits, orders, judgments and decrees of any court or
governmental or regulatory authority, including, without limitation, all
applicable permitting procedures for the drilling or operation of oil and gas
wells and all applicable laws regarding the spacing, completion and bottoming of
wells.
(d) Except for damage claims not exceeding $25,000 with respect to any
one Lease or $100,000 with respect to all Leases,
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all claims relating to damages to the surface estate caused by operations of PEI
on the Leases have been resolved and any required payments in full settlement
thereof have been accepted by the appropriate owner of the surface estate.
(e) PEI holds all governmental licenses and permits necessary to
operate the Wells as currently operated and sell production therefrom and all
such licenses and permits are in full force and effect and no violations have
occurred or exist in respect of any such license or permit. No proceeding is
pending or, to the knowledge of Seller, threatened involving the revocation or
limitation of any such license or permit nor, to the knowledge of Seller, is
there any basis for any such revocation or limitation.
3.6 LEASES.
(a) The Leases are valid, binding and in full force and effect and no
default exists thereunder in the payment of rentals, royalties or other amounts
due thereunder or in the performance of any other obligation of PEI thereunder.
(b) Each of the Leases covers the lands embraced thereby to all depths
which it purports to cover and there are no provisions or terms in any of the
Leases which would increase the royalty share of the lessor thereunder, other
than as set forth in Schedule 3.6(b).
(c) Except as set forth in Schedule 3.6(c), none of the Leases requires
the drilling of additional wells or other development operations in order to
earn or to continue to hold such Leases (insofar as they cover lands embracing
drainage areas for the Wells) or permit the continued operation of the Wells
thereon.
(d) Schedule 3.6(d) sets forth the Wells that may be required to be
plugged and abandoned without compensation to PEI by virtue of the superior
property rights residing in certain coal leases.
3.7 GATHERING SYSTEMS.
(a) PEI owns or has an ownership interest in the gathering systems
described in Schedule 3.7 (the "Gathering Systems") and in all assets reasonably
necessary for the operation thereof, free and clear of any mortgages, liens,
security interests or other encumbrances except mortgages and security interests
in
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favor of The Chase Manhattan Bank, N.A. Schedule 3.7 identifies the Gathering
Systems that are owned solely by PEI and those in which it owns an undivided
fractional interest.
(b) PEI owns or holds all easements, rights-of-way, licenses or other
rights necessary for the operation of the Gathering Systems.
(c) The Gathering Systems are located within the boundaries of valid
and subsisting easements, rights-of-way, licenses or other rights held by PEI.
(d) To Seller's knowledge, neither the Seller nor PEI has received any
notice of any action, suit or proceeding pending or threatened against PEI
adverse to the ownership of PEI in the Gathering Systems or the right of PEI to
operate or maintain the Gathering Systems under any permit, right-of-way,
easement or lease under or on which the Gathering Systems are located. As used
in this Agreement, "Seller's knowledge" shall refer to matters which are known
to Paul Poole, Tom Liberatore, Tony Anderson or Dave Cox or by the current
officers or directors of PEI.
3.8 CONTRACTS. Schedule 3.8 contains a complete and correct list of (a) all
communitization, unitization and pooling agreements relating to the Wells, (b)
all operating, exploration, seismic exploration, drilling, area of mutual
interest, participation, farmout and farmin agreements to which PEI is a party
or by which PEI is bound and, (c) all gas purchase, sales, exchange,
transportation and processing agreements extending for a term of greater than
thirty (30) days to which PEI is a party or by which PEI is bound, (d) all
contracts and commitments of PEI for capital expenditures in excess of $50,000
for any one project or in the aggregate or for the performance of a material
amount of services for a period extending beyond the Closing Date and (e) all
material contracts or leases for the purchase or lease of any real or personal
property (other than the Leases). All agreements, contracts and commitments
listed in Schedule 3.8 are in full force and effect and no default exists
thereunder in the payment of any amounts due from PEI thereunder or in the
performance of any material obligation of PEI thereunder.
3.9 LITIGATION. Except as set forth in Schedule 3.9, there is no action, suit,
proceeding, arbitration or governmental investigation pending or, to the
knowledge of Seller threatened against PEI and, to the knowledge of Seller,
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no facts exist that might result in or form the basis for any such action, suit,
proceeding, arbitration or investigation.
3.10 ROLLING STOCK. Schedule 3.10 contains a complete list of the vehicles and
rolling stock owned by PEI, free and clear of any liens or encumbrances, all of
which have had reasonable maintenance, upkeep and repair.
3.11 CERTAIN MATTERS RELATING TO PRODUCTION.
(a) Except as set forth in Schedule 3.11, PEI is not obligated, by
virtue of a "take-or-pay" or other prepayment arrangement, a gas balancing
agreement or any similar provision in any contract for the sale of production,
to deliver production from the Wells at some future time without receiving full
payment therefor.
(b) Except as set forth in Schedule 3.11, PEI has not charged or
received any proceeds from the sale of production from the Wells in excess of
amounts (i) permitted under the applicable laws, rules and regulations of the
federal, state or local government or (ii) due to it under the Leases.
3.12 BUYER'S LIABILITY FOR FEES. Seller has incurred no liability, contingent or
otherwise, for brokers, or finders' fees with respect to the transactions
contemplated hereby for which Buyer or PEI shall have any responsibility
whatsoever.
3.13 INSURANCE AND BONDS. Schedule 3.13 contains a true and complete list, as of
the date hereof, of (a) all material policies of insurance (other than officer's
and director's liability policies) which cover PEI or any of its assets or
properties against losses, and (b) all bonds which are required by laws, rules
or regulations of any applicable governmental authority. Buyer recognizes that
the insurance coverages set forth in Schedule 3.13 are policies covering the
operations and assets of Seller and its affiliates and the limits of coverage
available thereunder to PEI are subject to claims by Seller and its affiliates.
There are no third party liability claims or automobile accident claims against
PEI currently pending involving such insurance except as disclosed in Schedule
3.13.
3.14 EMPLOYEES.
(a) Schedule 3.14 sets forth a complete list reflecting the name and
compensation rate of each employee of PEI as of the date hereof and as of
December 31, 1998. Neither Seller nor PEI
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has made any increase in compensation for any such employees which is not in the
ordinary course of business for PEI.
(b) PEI is not a party to, and has no obligation under, any agreement
with any party relating to the employment, compensation, severance pay or
working conditions of any of PEI's employees. There are no existing or
threatened labor strikes, slowdowns, disputes or disturbances affecting or which
might affect the business or operations of PEI. PEI has not engaged in any
unfair labor practice, illegal employment practice or unlawful discriminatory
practice in the conduct of its business. PEI has complied in all material
respects with all applicable laws, rules and regulations relating to wages,
hours and collective bargaining and has withheld all amounts required to be
withheld from the wages or salaries of employees. PEI is not a party to, or to
Seller's knowledge, threatened with, or in danger of being a party to, any labor
dispute which would materially interfere with the conduct of their businesses.
(c) PEI is not an "administrator," "plan sponsor" or "fiduciary" as
such terms are defined in Section 3(16) of the Employee Retirement Income
Security Act of 1974 ("ERISA") of any "employee benefit plan" as defined in
Section 3(3) of ERISA. PEI does not contribute to any employee benefit plan.
Employees of PEI are entitled to participate in employee benefit plans
maintained by Seller so long as PEI remains a subsidiary of Seller. All employee
benefit plans in which employees of PEI are eligible to participate are in full
compliance with all applicable laws, and there has been no violation of or
default under any provision of any such employee benefit plan and no event has
occurred or circumstance exists that would subject Buyer or PEI to any taxes,
penalties or other liabilities after the Closing Date, whether to governmental
authorities or to current or former PEI employees (or their beneficiaries).
3.15 BANKS AND ATTORNEYS-IN-FACT. Schedule 3.15 sets forth a complete list
reflecting (a) the name of each bank or financial institution with which PEI
maintains banking relations or has an account, (b) the names of all persons
authorized by PEI to effect transactions with each such bank or financial
institution, (c) the name of each bank in which PEI maintains a safe deposit box
and the persons authorized to have access thereto, and (d) the names of all
persons authorized by powers of attorney to act on behalf of PEI and the
circumstances under which each such power of attorney may be revoked by PEI.
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3.16 WELL REVENUES AND EXPENSES. The historical information consisting of
production history data, operating cost history and data showing PEI's Working
Interest and Net Revenue Interest in the Wells furnished to Ryder Scott Company,
petroleum engineers, in connection with its reserve report as of December 31,
1998, accurately reflects the quantities of oil and gas produced from the Wells,
the prices at which such oil and gas was sold, the operating expenses relating
to the Wells and the Net Revenue Interest and Working Interest of PEI therein.
The updated reserve report as of October 1, 1999 furnished to Buyer by Seller
was derived from records which accurately reflect the quantities of oil and gas
sold from January 1, 1999 to October 1, 1999 (but not the prices at which such
oil and gas was being sold on October 1, 1999). It is expressly understood that,
with the exception of the express terms of the representations and warranties
contained in this Section 3.16, Seller makes no representations or warranties,
express or implied, with respect to the reserve reports, including, without
limitation, any conclusions, opinions, projections, assumptions or judgments
that were made by the engineers, Seller or PEI.
3.17 FINANCIAL STATEMENTS. Schedule 3.17 includes the following financial
statements: (i) the unaudited balance sheet of PEI as of August 31, 1999,
November 30, 1999 and December 31, 1999 and the related statement of income for
the periods then ended, and (ii) the unaudited balance sheets of PEI as of
December 31, 1998 and 1997 and the related statements of income for the years
then ended. Such financial statements fairly present the financial position and
results of operations of PEI as of the dates and for the periods therein set
forth, and are correct and complete and are consistent with the books and
records of PEI. Such financial statements are in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods, except for certain items which were not allocated from the Seller to
PEI as identified in Schedule 3.17 and the exclusion of footnote disclosures.
Such exceptions do not materially impact the PEI income statement. Except as
reflected on the November 30, 1999 balance sheet of PEI and Schedule 3.17, as of
November 30, 1999, PEI did not have any debts or liabilities of a nature
required by generally accepted accounting principles to be reflected as a
liability on such balance sheet other than liabilities which will be assumed or
retained by Seller. Since November 30, 1999, PEI has conducted its business in
the ordinary course consistent with past practice (except for matters
contemplated by this Agreement), including, without limitation, the collection
of accounts receivable, payment of
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accounts payable and maintenance of working capital, and there has not been any
event or occurrence that has had a material adverse effect on the assets,
liabilities, financial condition or results of operations of PEI other than
events or occurrences generally affecting the oil and gas industry (including,
without limitation, decreases in the prices of oil and gas) or the geographic
area in which PEI operates, any change resulting from normal production
declines, sales curtailments due to general market conditions, accidents or acts
of God.
3.18 GUARANTEES. Schedule 3.18 sets forth a complete list of all obligations
with respect to which PEI is a guarantor, indemnitor or surety.
3.19 LIABILITIES ON CLOSING. On the Closing Date, PEI will have no debts,
liabilities or obligations (whether accrued, absolute, contingent or otherwise)
incurred prior to Closing of a nature required by generally accepted accounting
principles to be reflected on a balance sheet of PEI except (i) trade payables
and accrued expenses, (ii) production, severance or similar taxes payable by PEI
with respect to hydrocarbons produced prior to the Closing Date, (iii) ad
valorem taxes attributable to periods prior to the Closing Date which will
become due and payable after the Closing Date, (iv) amounts payable to holders
of royalty, overriding royalty, working interest and other interests by PEI with
respect to the sale of hydrocarbons produced prior to the Closing Date and (v)
as guarantor of Seller's indebtedness under Seller's Credit Agreement dated June
27, 1997 (the "Credit Agreement") and under the 97/8% Senior Subordinated Notes
of Seller due 2007 (the "Senior Notes") as to which PEI shall be released at or
before the Closing.
3.20 LIENS. PEI has good and marketable title to the assets and properties used
in its business (except assets and properties leased by PEI). Such assets and
properties are not subject to, or encumbered by any mortgages, security
interests, liens, claims and encumbrances except for Permitted Encumbrances or
those set forth in Schedule 3.20 which are to be released at or prior to the
Closing. For purposes of this Agreement, "Permitted Encumbrances" means: (i)
lessors' royalties, overriding royalties, reversionary interests and similar
burdens of record on or deductions from the proceeds of production which operate
to reduce the net revenue interests of PEI in production from any Well or Lease;
(ii) division orders and sales contracts terminable without penalty upon notice
to the purchaser and any division orders and sales contracts of longer duration
which are not material in relation to the Wells or Leases; (iii)
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preferential rights to purchase and required third-party consents and similar
agreements which are not applicable to the purchase or with respect to which
waivers or consents are obtained from the appropriate parties or for which the
appropriate time period for asserting the right has expired without an exercise
of the right; (iv) liens for taxes or assessments not yet delinquent or, if
delinquent, have been disclosed to Buyer and are being contested in good faith
by appropriate action; (v) materialman's, mechanic's, repairman's, employee's,
contractor's, operator's, and other similar liens or charges arising in the
ordinary course of business (a) if they have not been filed pursuant to any
applicable law, or (b) if filed, they have been disclosed to Buyer and they have
not yet become due and payable or payment is being withheld as provided by any
applicable law or the validity of which is being contested in good faith by
appropriate action; and (vi) easements, rights-of-way, servitudes, permits,
surface leases and other rights in respect of surface operations.
3.21 COMPLIANCE WITH LAWS. PEI is not in material violation of, or subject to
any material liability for the violation of, any applicable law governing the
ownership or operation of its assets, properties and business, other than
violations which individually or in the aggregate would not subject PEI to
material liabilities, provided, however, that the foregoing shall not be
applicable to (i) Environmental Laws, as to which the provisions of Section 3.26
shall be exclusive, (ii) Taxes or Returns, as to which the provisions of Section
3.22 shall be exclusive, (iii) laws relating to the drilling, completion and
operation of oil and gas wells, as to which the provisions of Section 3.5(c)
shall be exclusive, or (iv) laws relating to the employment of labor and
employee benefit plans, as to which the provisions of Sections 3.14 shall be
exclusive.
3.22 TAXES. Seller has (i) timely filed or will timely file all tax returns,
schedules, declarations, and tax-related documents (collectively, "Returns")
required to be filed in any jurisdictions to which PEI is or has been subject,
which include, on a consolidated or any other reporting basis, the results of
operations of PEI and any partnership or joint venture of which PEI is a member,
(ii) timely paid in full any interest and penalties with respect thereto,
subject to audit by the taxing authorities of such jurisdictions, (iii) made
timely payments of the taxes required to be deducted and withheld from the wages
paid to PEI employees, and (iv) otherwise satisfied, in all material respects,
all legal requirements applicable to each with respect to all aforementioned
obligations to taxing
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jurisdictions. Except as set forth in Schedule 3.22, Seller has no knowledge
that an audit of any of the federal income tax returns relating to PEI is in
progress and no reason to believe that any such audit is contemplated. There are
no other pending material questions relating to, or claims asserted for (or to
Seller's knowledge any basis therefor), taxes or assessments of or attributable
to PEI. For purposes of this Section, "Tax" and "Taxes" (when not modified by
other words such as "income" or "franchise") shall include all income, gross
receipts, franchise, single business excise, real and personal property, and
other taxes imposed by any federal, state, municipal, local, or other
governmental agency, including assessments in the nature of taxes. All returns
which include the operations of PEI are true, accurate and complete.
3.23 ACCOUNTS RECEIVABLE. All accounts receivable of PEI that are reflected on
the books or on the accounting records of PEI as of December 31, 1999 and the
Closing Date (collectively, the "Accounts Receivable") represent or will
represent valid obligations arising from sales actually made or services
actually performed in the ordinary course of business. Unless paid prior to the
Closing Date, the Accounts Receivable are or will be as of the Closing Date
current and collectible net of the respective reserves shown on the balance
sheet or on the accounting records of PEI as of the Closing Date (which reserves
are adequate and calculated consistent with past practice and will not represent
a material adverse change in the composition of such Accounts Receivable in
terms of aging). There is no contest, claim, or right of set-off, other than
returns in the ordinary course of business, under any contract with any obligor
of an Accounts Receivable relating to the amount or validity of such Accounts
Receivable. All Accounts Receivable (net of their respective reserves)
classified as current in PEI's balance sheets, with the exception of up to
$100,000, are expected to be collected within 120 days of the balance sheet
dates.
3.24 CONDITION AND SUFFICIENCY OF ASSETS. The buildings, plants, structures, and
equipment of PEI are structurally sound, are in reasonably good operating
condition and repair, and are adequate for the uses to which they are being put,
and none of such buildings, plants, structures, or equipment is in need of
maintenance or repairs except for ordinary, routine maintenance and repairs that
are not material in nature or cost. The building, plants, structures, and
equipment of PEI are sufficient for the continued conduct of PEI's businesses
after the Closing in substantially the same manner as conducted prior to the
Closing.
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3.25 INTELLECTUAL PROPERTY. Schedule 3.25 is a list of all Intellectual Property
(patents and patent applications, trade names, trademarks, trade name and
trademark registrations (and pending applications therefor), service marks, and
copyrights) owned or licensed by PEI. Except as may be identified in Schedule
3.25, PEI has the right to use all of its Intellectual Property whenever
employed in connection with its business. PEI is the owner of all right, title
and interest in and to its trade name and any trademark identified on Schedule
3.25, free and clear of all liens, security interest charges, encumbrances and
other adverse claims. To Seller's knowledge, PEI has not infringed upon or
improperly used any Intellectual Property of any third party.
3.26 NO VIOLATION OF ENVIRONMENTAL LAWS. Except as set forth on Schedule 3.26,
the business of PEI does not materially violate any Environmental Law and there
are no conditions existing on the Wells or Leases or resulting from the
operation of the Wells that could reasonably be expected to give rise to any
material on-site or off-site remedial obligations under any Environmental Law.
Without limiting the generality of the foregoing, except as set forth on
Schedule 3.26(a) PEI has either directly transported and/or disposed of effluent
chemical, waste, sewage and other waste materials in material compliance with
all applicable federal, state and local environmental laws and regulations or
has utilized disposal and treatment contractors and facilities permitted or
authorized to handle such substances by the government agency with jurisdiction
thereof; (b) no wastes generated by PEI from the Wells and Leases or other wells
previously owned or operated by PEI have ever been sent or are being sent,
directly or indirectly, to any site listed on the National Priority List
promulgated pursuant to the Comprehensive Environmental Response, Compensation
and Liability Act ("CERCLA") or to any site listed on any other federal or state
governmental list of hazardous substance sites requiring investigation or clean
up; (c) to Seller's knowledge, there are no underground tanks used to store any
"hazardous substance" as defined in CERCLA or petroleum located upon the real
property on which the Wells and Leases are located or upon any other real estate
owned or leased by PEI, or in which PEI holds an interest, in connection with
the Wells and Leases; (d) no real estate or improvements owned or leased by PEI,
or in which PEI holds an interest, in connection with the Wells and Leases, or
any ground water located thereunder, is contaminated with any chemical,
petroleum product, toxic or hazardous waste or substances in quantities
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exceeding levels permitted by applicable laws and regulations which would create
a legal duty to incur material expenses for removal or other remedies, or any
other material costs, fines or penalties; (e) no brine, hazardous, toxic or
polluting substances has been released, discharged or disposed of by PEI on the
real property on which the Wells and Leases are located in violation of any law,
rule or regulation which has not been remediated such that there is no legal
duty to incur expenses for removal or remediation or any other costs, fines or
penalties; (f) PEI has not received any notice, nor does PEI have any reasonable
basis to expect that it is subject to any material liability under RCRA, CERCLA,
SARA, the Federal Safe Drinking Water Act, the Federal Clean Water Act or the
Federal Clean Air Act, Ohio, West Virginia, Kentucky or Virginia, or any
applicable local, environmental laws or regulations ("Environmental Laws"), nor,
to the knowledge of PEI, subject to any material investigations, inspections or
citations under any applicable laws, rules or regulations; and (g) PEI has not
received any notice of violation that is now pending and unresolved of any such
applicable law, ordinance, regulation, order or requirement relating to the
Wells and Leases.
3.27 INVENTORY. All inventory of PEI, whether or not reflected in the balance
sheet delivered pursuant to Section 3.17 or any subsequent financial statement
delivered to Buyer, consists of a quality and quantity usable and salable in the
ordinary course of business, except for obsolete items and items of
below-standard quality, all of which have been written off or written down to
net realizable value in the Balance Sheet or the Interim Balance Sheet or on the
accounting records of PEI as of the Closing Date, as the case may be.
3.28 TAX CREDIT CONTRACTS. The Tax Credit Contracts identified on Schedule
3.28(a) are legal, valid, binding, enforceable and in full force and effect
except to the extent that enforceability may be limited by applicable
bankruptcy, insolvency or similar laws affecting enforceability or the
availability of equitable remedies; (b) except as disclosed in Schedule 3.28(a),
the Tax Credit Contracts will continue to be legal, valid, binding and
enforceable and in full force and effect on identical terms following the
Closing; (c) neither PEI or Seller is, and Seller has no knowledge that the
other party is, in breach or default and no event has occurred which with notice
or lapse of time would constitute a breach or default or permit termination,
modification or acceleration under such Tax Credit Contract; and (d) neither PEI
or Seller has, and the Seller has no knowledge that the other party has,
repudiated any
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provision of the Tax Credit Contracts. There are no negotiations of, attempts to
renegotiate, or outstanding rights to renegotiate any material amounts paid or
payable by or to PEI under the Tax Credit Contracts and neither party to any
such contracts has made written demand for such renegotiation. Seller has
delivered to Buyer correct and complete copies of each Tax Credit Contract (as
amended to date).
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
4.1 CORPORATE EXISTENCE AND QUALIFICATION. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation. Buyer has all requisite corporate power and
authority to own, operate and lease its properties and to carry on its business
as presently conducted.
4.2 AUTHORITY, APPROVAL AND ENFORCEABILITY. Buyer has all requisite corporate
power and authority to execute and deliver this Agreement and to perform its
obligations under this Agreement. Subject to the approval of the Board of
Directors of Buyer, all corporate action necessary to authorize the execution
and delivery of this Agreement by Buyer and the performance of the transactions
contemplated hereby by Buyer has been duly and validly taken. This Agreement has
been duly executed and delivered by Buyer and constitutes the valid and binding
obligation of Buyer.
4.3 NO DEFAULT OR CONSENTS. Neither the execution and delivery of this Agreement
nor the consummation of the transactions contemplated herein will:
(a) conflict with or result in a breach, default or violation of
the certificate of incorporation or by-laws of Buyer;
(b) except for compliance with the HSR Act, conflict with or
result in a breach, default or violation of, or require any
consent with respect to, any agreement, document, instrument,
judgment, decree, order, governmental permit, certificate or
license to which Buyer or any affiliate of Buyer is a party or
to which
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Buyer or any affiliate of Buyer is subject or by which any of
their property is bound; or
(c) except for compliance with the HSR Act, require Buyer or any
affiliate of Buyer to obtain any waiver, consent, approval,
clearance or authorization of, or to make any registration,
declaration or filing with, any governmental authority.
4.4 INVESTMENT. Buyer is acquiring the Stock for its own account, for investment
and not with a view to, or for offer or resale in connection with, a
distribution thereof within the meaning of the Securities Act of 1933, as
amended, and the rules and regulations thereunder.
4.5 SELLER'S LIABILITIES FOR FEES. Neither Buyer nor any affiliate of Buyer has
incurred any liability, contingent or otherwise, for brokers' or finders' fees
with respect to the transactions contemplated hereby for which Seller or any
affiliate of Seller shall have any responsibility whatsoever.
ARTICLE V
DUE DILIGENCE AND ADJUSTMENTS
5.1 REVIEW BY BUYER. For the period beginning on the date of this Agreement
until Closing, Buyer may conduct, at its sole cost, such title examination or
investigation and such other investigations as it may, in its sole discretion
choose to conduct with respect to the assets and properties of PEI in order to
determine whether any Defect (as defined below) exists. If, as a result of such
examinations and investigations, one or more matters come to Buyer's attention
which would constitute a Defect which Buyer is unwilling to waive, Buyer shall
notify Seller in writing of such Defect as soon as reasonably practicable prior
to the Closing Date (such Defects of which Buyer so provides notice are called
"Asserted Defects"). Such notification shall include a description of the
Asserted Defect and the property to which it relates, all supporting
documentation necessary to describe the basis for the Defect and the amount by
which Buyer proposes to adjust the Purchase Price.
5.2 NATURE OF DEFECTS. The term Defect as used in this Section shall mean the
inaccuracy of (i) any representation or warranty of Seller set forth herein or
(ii) any historical financial and statistical data identified in Schedule 5.2.
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5.3 SELLER'S RESPONSE. In the event that Buyer notifies Seller of an Asserted
Defect:
(i) Object. Seller may notify the Buyer in
writing that it does not agree that the matter
described in Buyer's notification constitutes a
Defect, in which event the dispute shall be resolved
in accordance with the procedure described in Section
5.4;
(ii) Cure. Seller may, at its election,
attempt to cure such Defect which relates to title
representations and warranties made in Sections 3.5,
3.6, 3.7 or 3.20 hereof or to environmental
remediation in Section 3.26 hereof to the reasonable
satisfaction of Buyer prior to the Closing; provided
that Buyer and Seller may mutually agree to postpone
the Closing to allow Seller to cure such Defect;
(iii) Price Adjustment. In the event the
Defect is not resolved through (ii) or (iv) of this
Section, the parties shall negotiate in good faith in
an attempt to agree upon an appropriate downward
adjustment. If they are unable to agree on the amount
of the adjustment at or prior to the Closing, the
dispute shall be resolved in accordance with the
procedure described in Section 5.4 unless the parties
mutually agree that the asset or property to which
such Asserted Defect relates shall be transferred to
Seller and the Purchase Price shall be reduced by the
amount of the Purchase Price allocated thereto as set
forth in Schedule 1.6 or a mutually agreed
alternative value;
(iv) Indemnity. Seller may elect to
permanently indemnify Buyer against such Defect
provided, however, that the terms of, and security
for, such indemnity shall be satisfactory to Buyer;
or
(v) Notwithstanding the foregoing, and
subject only to Buyer's obligation to act in a
reasonable manner, Buyer may elect, in its sole
discretion, to reject any cure proposals or
indemnification proposals from Seller pursuant to
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(ii) or (iv) above and elect to resolve Asserted
Defects in accordance with the terms of (iii) above.
5.4 DISPUTE RESOLUTION. The parties shall cooperate in good faith to resolve
expeditiously any disputes between them with respect to the existence of a
Defect or the amount of the Purchase Price adjustment to be made with respect to
a Defect; provided that if they are unable to do so on or prior to the Closing
Date, the parties shall refer the dispute to three disinterested arbitrators, of
whom one shall be selected by Seller, one by Buyer and one by the two
arbitrators selected by Seller and Buyer and the parties shall be obligated to
close the transaction contemplated hereby unless the performance of either party
is otherwise excused. Each party will select its arbitrator within five (5)
business days of the reference of the dispute to arbitration and the two
arbitrators so selected must select the third arbitrator within five (5)
business days of the latest date on which they have been selected. The failure
of either party to select an arbitrator within the time allowed shall be deemed
to an agreement to the appointment of the arbitrator selected by the other
party.
Seller and Buyer shall each submit to the arbitrators their position on the
matter in dispute and the arbitrators shall be limited in their determination to
adopting the position of either Seller or Buyer on the matter. For issues of
valuation the arbitrators may consider all pertinent factors including the
retrospective or prospective effect of a Defect and the Defect's potential
effect on multiple factors relevant to the value of PEI's assets, properties and
business.
The resolution of any dispute by the majority vote of the three arbitrators
shall be conclusive and binding on the parties hereto. The costs of the
arbitration shall be borne equally by Seller and Buyer. If any such dispute is
not resolved on or prior to the Closing Date, then the amount of the Purchase
Price adjustment proposed by Buyer in its notice of Asserted Defect shall be
withheld from the Estimated Purchase Price, and deposited in escrow with the
Escrow Agent for distribution in accordance with the final arbitration award.
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ARTICLE VI
COVENANTS OF SELLER AND BUYER
6.1 COVENANTS OF SELLER. Seller covenants and agrees with Buyer as follows:
(a) Access to Information. Subject to Section 12.1, from the date
hereof through the Closing Date, Seller shall, and shall cause
PEI to (i) permit Buyer and its authorized employees, agents,
accountants, legal counsel, and other representatives to have
reasonable access, at Buyer's sole expense, risk and cost,
during normal business hours, to PEI's properties and the
Records and (ii) furnish Buyer with such additional financial
and operating data and other information pertaining to PEI and
its assets and operations as Buyer may reasonably request, in
each case to the extent that such access and disclosure would
not violate the terms of any agreement to which Seller, PEI or
any affiliate thereof is bound or any applicable law or
regulation.
(b) Certain Changes. Except as otherwise contemplated in this
Agreement, from the date hereof through the Closing Date,
Seller will not permit, without first obtaining the consent of
Buyer, PEI to:
(i) make any material change in the nature of its
business;
(ii) enter into, voluntarily terminate or amend in any
material respect any material contract or agreement
other than in the ordinary course of business;
(iii) merge into or with or consolidate with, or acquire
all or substantially all of the business or assets of
any corporation, partnership or other business
organization or division thereof;
(iv) make any change in its Certificate of Incorporation
or Bylaws;
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(v) purchase any securities except for short-term
investments made in the ordinary course of business;
(vi) other than pursuant to existing contracts or
commitments listed in the Schedules to this
Agreement, sell, lease, or otherwise dispose of any
of its assets or properties other than in the
ordinary course of business, or pledge, grant a
security interest in or otherwise materially encumber
any of its assets or properties.
(vii) incur any indebtedness for borrowed money or incur
any material liability or obligation except in the
ordinary course of business;
(viii) issue any securities or grant any options, warrants
or rights to purchase any of its securities;
(ix) increase the compensation payable or to become
payable to any officer, director or employee of PEI
or enter into any employment contract or severance
arrangement with any officer, director or employee of
PEI; or
(x) commit itself to do any of the foregoing.
(c) Conduct of Business. Except as otherwise contemplated in this
Agreement, from the date hereof through the Closing Date,
Seller will cause PEI, unless consent to act to the contrary
is first obtained from Buyer, to conduct its business in the
ordinary course, including, without limitation, to use all
reasonable efforts to comply in all material respects with all
applicable laws, rules, regulations, judgments, orders and
decrees, and to use reasonable efforts to maintain good
relationships with the customers, suppliers and others it
customarily transacts business with, to maintain its assets
and properties in the same condition as it has heretofore
maintained same and to maintain compliance in all material
respects with all of its material agreements. In addition to
the foregoing, Seller will, or will cause PEI to, timely pay
all accounts payable and collect accounts
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receivable in the ordinary course of business, consistent with
past practice.
(d) Insurance and Bonds. Seller shall not voluntarily terminate
and will use all reasonable efforts to maintain in force and
effect through the Closing the insurance and bond coverages
set forth in Schedule 3.13 or will use all reasonable efforts
to cause to be placed in force and effect comparable insurance
or bond coverage.
(e) Litigation. Seller shall furnish to Buyer a written supplement
to Schedule 3.9 promptly after Seller's receipt of notice of
any occurrence that would cause said Schedule to be in error.
Seller will consult with Buyer and will make available to
Buyer for its review and reproduction, upon Buyer's request,
all pleadings, correspondence and other relevant documentation
and information relating to the items described in any such
supplement to Schedule 3.9.
(f) HSR Act. Seller will (i) if required by the HSR Act, file as
promptly as practicable with the Department of Justice and the
Federal Trade Commission the notification and report form with
respect to the transactions contemplated hereunder specified
by the HSR Act requesting early termination of the waiting
period thereunder, and (ii) respond promptly to inquiries from
the Federal Trade Commission or the Department of Justice in
connection with such filing, and (iii) pay fifty percent (50%)
of the fee required by the HSR Act.
(g) Updated Financial Statements and Information. As soon as
practicable after the end of each month during the period from
the date of this Agreement until the Closing Date (including
for purposes of this Section, an obligation with respect to
the month ended December 31, 1999), and in no event later than
thirty (30) days after the end of each such month, Seller will
prepare and promptly deliver to Buyer copies of an unaudited
balance sheet, related unaudited income statement and
statement of retained earnings for PEI for the month and year
to date then ended. All financial statements delivered
pursuant to this Section 6.1(g) will, when delivered, comply
in all respects with, and otherwise be subject to, the
representations and warranties set
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forth herein including those set forth in Section 3.17. In
addition thereto, Seller will provide monthly written reports
to Buyer with respect to (i) PEI's payment of any cash
dividend or other cash distribution, transfer or payment of
any kind (including, without limitation, fees) to Seller, (ii)
Seller's contribution of any cash to PEI and (iii) the payment
of cash disbursements made by Seller on behalf of PEI during
the period from January 1, 2000 to the Closing for purposes of
which Seller would propose to claim a purchase price
adjustment pursuant to Section 1.3(b)(ii)) with all
appropriate supporting detail.
(h) Audited Financial Statements. As soon as practicable, however
no later than March 31, 2000, Seller will deliver to Buyer the
Balance Sheets of PEI as of December 31, 1998 and 1999, and
the statements of operations, cash flows and equity for the
three years ended December 31, 1999 along with the related
footnote disclosures, together with the report thereon of
Ernst & Young LLP, independent certified public accountants
(the "Audited Financial Statements"). The Audited Financial
Statements and notes will fairly present the Balance Sheets
and the statements of operations, cash flows and equity of PEI
at the respective dates of and for the periods referred to in
such financial statements, all in accordance with generally
accepted accounting principles, consistently applied. The
Audited Financial Statements will be prepared at Seller's sole
cost and expense.
(i) Notification by Seller of Certain Matters. Throughout the
period beginning on the date hereof and ending on the earlier
of the Closing Date and the date on which this Agreement shall
have been terminated pursuant to Section 10.1, Seller shall
notify Buyer in writing of any fact or development that, to
Seller's knowledge, causes or constitutes a breach of any of
Seller's representations or warranties set forth herein.
(j) Exclusivity. On and after the date hereof, unless this
Agreement shall have terminated in accordance with the
provisions of Article X, Seller shall not, and shall cause PEI
and the officers, directors and employees of Seller and PEI
not to, directly or
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indirectly, solicit, initiate, authorize the solicitation of
or enter into any discussions with any person or entity other
than Buyer involving the possible acquisition of all or part
of the Stock or the business or assets of PEI.
(k) Cooperation. Seller agrees to use all reasonable efforts to
cause the conditions set forth in Section 7.1 to be satisfied,
including, without limitation, the delivery of all legal
opinions, certificates and other documents or instruments
required to obtain the releases provided for in Section
7.1(d).
6.2 COVENANTS OF BUYER. Buyer covenants and agrees with Seller as follows:
(a) BONDS. Buyer shall have taken such actions necessary to
satisfy Seller, as of the Closing, that Seller will be
released from all obligations under the bonds set forth in
Schedule 3.13.
(b) HSR ACT. Buyer will (i) if required by the HSR Act, file as
promptly as practicable with the Department of Justice and the
Federal Trade Commission the notification and report form with
respect to the transactions contemplated hereunder specified
by the HSR Act requesting early termination of the waiting
period thereunder, and (ii) respond promptly to inquiries from
the Federal Trade Commission or the Department of Justice in
connection with such filing, and (iii) pay fifty percent (50%)
of the fee required by the HSR Act.
ARTICLE VII
CONDITIONS TO CLOSING
7.1 CONDITIONS TO OBLIGATIONS OF SELLER. The obligations of Seller to consummate
the transactions contemplated by this Agreement are subject to the satisfaction
at or prior to the Closing of all of the following conditions, any one or more
of which may be waived in writing in whole or in part by Seller (which waiver
shall be deemed to constitute a waiver of any liability Buyer may have under
this Agreement with respect to the event or condition causing such condition not
to be satisfied at the Closing):
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(a) COMPLIANCE. Buyer shall have complied in all material respects with
its covenants and agreements contained herein, and Buyer's representations and
warranties contained herein, shall be true and correct in all material respects
on and as of the Closing Date, with the same effect as though made at such time.
(b) NO ORDERS. No order, writ, injunction or decree shall have been
entered and be in effect by any court of competent jurisdiction or any
governmental authority, and no statute, rule, regulation or other requirement
shall have been promulgated or enacted and be in effect, that restrains, enjoins
or invalidates the transactions contemplated by this Agreement.
(c) NO SUITS. No suit or other proceeding shall be pending by any third
party before any court of competent jurisdiction or any governmental authority
seeking to restrain or prohibit or declare illegal, or seeking substantial
damages in connection with, the transactions contemplated by this Agreement.
(d) RELEASES. PEI shall have been released of its obligations as a
guarantor under the Credit Agreement and as a guarantor of the Senior Notes, the
Stock shall have been released from the pledge thereof given to the lenders
under the Credit Agreement and the assets and properties of PEI shall have been
released from any and all mortgages and security interests in favor of such
lenders.
(e) HSR ACT. All applicable waiting periods under the HSR Act shall
have expired or been terminated.
(f) PURCHASE PRICE ADJUSTMENTS. The sum of (i) the Purchase Price
adjustments agreed upon in accordance with Section 5.3 plus (ii) the aggregate
amount of the Purchase Price adjustments proposed by Buyer pursuant to Section
5.1 that are unresolved as of the Closing Date does not exceed $7,400,000.
7.2 CONDITIONS TO OBLIGATIONS OF BUYER. The obligations of Buyer to consummate
the transactions contemplated by this Agreement are subject to the satisfaction
at or prior to the Closing of all of the following conditions, any one or more
of (which may be waived in writing in whole or in part by Buyer which waiver
shall be deemed to constitute a waiver of any liability Seller may have under
this Agreement with respect to the event or condition causing such condition not
to be satisfied at the Closing):
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(a) COMPLIANCE. Seller shall have complied in all material respects
with its covenants and agreements contained herein, and Seller's representations
and warranties contained herein (except those which are the subject of an
Asserted Defect which has been cured or for which a Purchase Price reduction has
been made or from which Buyer has been indemnified as provided in Section 5.3)
shall be true and correct in all material respects on and as of the Closing
Date, with the same effect as though made at such time; provided that if a
representation or warranty is expressly made only as of a specific date, it need
only be true and correct in all material respects as of such date. Seller shall
have delivered to Buyer at the Closing a certificate of the Chief Executive
Officer of Seller, dated the Closing Date, to the foregoing effect.
(b) RESIGNATIONS. Seller shall have delivered to Buyer the written
resignations, effective as of the Closing Date, of all of the members of the
Board of Directors and all officers of PEI.
(c) NO ORDERS. No order, writ, injunction or decree shall have been
entered and be in effect by any court of competent jurisdiction or any
governmental authority, and no statute, rule, regulation or other requirement
shall have been promulgated or enacted and be in effect, that restrains, enjoins
or invalidates the transactions contemplated by this Agreement.
(d) NO SUITS. No suit or other proceeding shall be pending or
threatened by any third party before any court of competent jurisdiction or any
governmental authority seeking to restrain or prohibit or declare illegal, or
seeking substantial damages in connection with, the transactions contemplated by
this Agreement.
(e) RELEASES. Seller shall have delivered appropriate releases of (i)
the guarantees of PEI referred to in Section 7.1(d) and (ii) all mortgages,
security interests and liens against the properties and assets of PEI referred
to in Section 7.1(d).
(f) HSR ACT. All applicable waiting periods under the HSR Act shall
have expired or been terminated.
(g) PURCHASE PRICE ADJUSTMENTS. The sum of (i) the Purchase Price
adjustments agreed upon in accordance with Section 5.3 plus (ii) the aggregate
amount of the Purchase Price
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adjustments proposed by Buyer pursuant to Section 5.1 that are unresolved as of
the Closing Date does not exceed $7,400,000.
(h) [Intentionally Omitted]
(i) COUNSEL OPINION. Buyer shall have received the favorable opinion of
Black, McCuskey, Souers & Arbaugh as to the matters set forth in Sections 3.1,
3.2 and 3.3.
(j) TRANSITION SERVICES AGREEMENT. Buyer and Seller shall have entered
into the Transition Services Agreement (in the form attached hereto as Exhibit
B) with respect to Seller's agreement to provide certain services to Buyer as
provided therein (including, without limitation, Seller's agreement to provide
health care coverage as provided in Section 11.3(b)(vii)).
(k) CONSENTS. Each of the consents identified in Schedule 3.4 must have
been obtained and must be in full force and effect.
ARTICLE VIII
TAX MATTERS
8.1 LIABILITY FOR TAXES.
(a) BUYER INDEMNIFICATION. Buyer shall indemnify and hold harmless each
member of the Seller Group (as defined in Section 8.7(a)) from and against any
liability for taxes attributable to the operations of PEI, or any consolidated
group of which PEI is a member, for any period commencing after the Closing
Date.
(b) SELLER INDEMNIFICATION. Seller shall be liable for and shall
indemnify and hold harmless Buyer from and against any liability for taxes
attributable to the operations of PEI, or any consolidated group including the
Seller, for any period ending prior to or on the Closing Date.
(c) PREPARATION OF INCOME TAX RETURNS. Seller shall prepare and file,
in a timely fashion, all appropriate and necessary federal, state and other
income tax returns, reports and estimates, the filing of which is required by
law ("Income Tax Returns") which include, on a consolidated or any other
reporting basis, the results of operations of PEI and any partnership or joint
venture of which PEI is a member for all taxable years ending prior to or on the
Closing Date. Seller shall pay or discharge any and all federal, state or local
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income taxes for which PEI may be held liable as a result of Income Tax Returns
required to be filed by or on behalf of PEI with respect to any taxable years
ending prior to or on the Closing Date.
(d) OTHER AGREEMENTS. Any and all consolidated tax sharing or other
agreements with respect to any taxes executed by PEI which are continuing in
effect will be terminated without liability to either party effective as of the
Closing Date.
(e) COMPLIANCE. For the taxable year which ends on or includes the
Closing Date, Seller will make all computations, allocations, determinations and
elections affecting the Seller and its affiliates in accordance with the
provisions of the U.S. Treasury Department regulations promulgated under
Section 1502 of the Code, in particular, Treas. Reg. 1502-76(b)(4).
8.2 TAX AUDITS. Seller shall be responsible for any audit or other proceeding
involving a taxable year ending on or prior to the Closing Date which involves
any tax liability of PEI. Seller, Buyer and PEI shall cooperate with each other
in the conduct of any audit or other proceedings.
8.3 COOPERATION. Buyer agrees to give to Seller prompt written notice of any
claim, demand, action, suit, proceeding, audit or assessment raised, brought,
threatened, made or commenced against PEI that relates to any matter to which
the foregoing indemnification provisions shall apply and agrees further, except
as provided below, not to make any admission or effect any settlement with
respect to any such claim without the written consent of Seller.
8.4 DEFENSE BY SELLER. If any claim shall be made or any action or proceeding
shall be commenced against Buyer or PEI in respect of any liability, obligation
or claim to which the indemnity pursuant to Section 8.1(b) relates, Seller shall
have the right, at its own expenses, to undertake the defense of any such claim,
action or proceeding by written notice given to Buyer at any time before the
final determination thereof, and Seller shall further have the right in its sole
discretion to settle any such claim, action or proceeding by payment to the
complainant.
8.5 ASSUMPTION OF DEFENSE. If Seller shall, within a reasonable time after
receipt of notice by Buyer, fail to defend a claim subject to indemnification
pursuant to Section 8.1(b), Buyer shall have the right, but not the obligation,
to undertake
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the defense of, and to compromise or settle (exercising reasonable business
judgment) the claim or other matter on behalf, for the account, and at the risk,
of Seller.
8.6 OTHER TAX MATTERS. Buyer shall timely prepare and file, or cause to be
timely prepared and filed, all applicable tax returns or other similar reports
for all taxes of PEI which relate to taxable periods ending subsequent to the
Closing Date and are due subsequent to the Closing Date. Buyer shall pay or
cause to be paid any and all taxes due as a result of the tax returns or reports
required to be filed pursuant to the preceding sentence.
8.7 SECTION 338(h)(10) ELECTION. The Seller covenants as follows:
(a) Seller is a member of an "affiliated group" of corporations (as
defined in Section 1504(a) of the Code), which includes Seller and PEI. Such
"affiliated group" of corporations is referred to herein as the "Seller Group"
and Seller is the common parent (as also defined in Section 1504(a) of the
Code).
(b) The Seller and the Buyer will make a joint election pursuant to
Section 338(h)(10) of the Code and Treas. Reg. Section 1.338(h)(10)-1T(d)(1) and
the analogous provisions of applicable state income tax law for both federal and
state income tax (where permissible)purposes with respect to the purchase of the
Stock as described herein whereby (i) PEI will be treated as having sold all of
its assets in a single transaction as of the close of business on the Closing
Date while a member of the Seller Group and (ii) no gain or loss will be
recognized to the Seller with respect to the sale of the Stock. The election
will include the execution and subsequent filing of Internal Revenue Service
Form 8023 and the analogous state income tax forms pursuant to the requirements
as stated therein.
(c) The income of PEI will be apportioned to the period from January 1,
1999 up to and including the Closing Date and to the period after the Closing
Date by closing the books of PEI as of the close of business on the Closing
Date. Seller will be responsible for taxes attributable to the income of PEI
allocated to the period from January 1, 1999 through the Closing Date and Buyer
or PEI will be responsible for taxes attributable to the income of PEI allocated
to the period after the Closing Date, which income shall include any income
generated pursuant
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to making the Section 338(h)(10) election as provided in Section 8.7(b).
(d) The allocation of purchase price among the assets of PEI will be
made in accordance with Code Sections 338 and 1060 and any comparable provisions
of state or local law, as appropriate. Seller shall, unless it would be
unreasonable to do so, accept Buyer's determination of such purchase price
allocations and shall report, act, file in all respects and for all purposes
consistent with such determination of Buyer. Seller and Buyer's agreement with
respect to Schedule 1.6 shall not otherwise limit or control Buyer's financial
statement presentation with respect to PEI or its assets.
8.8 REFUNDS. If after the Closing Date, PEI receives or is credited with a
refund of any tax arising from or attributable to the business of PEI through
the Closing Date, Buyer shall promptly pay to Seller an amount equal to the
amount of such refund together with any interest received from or credited
thereon by the applicable taxing authority.
ARTICLE IX
INDEMNIFICATION
9.1 SURVIVAL: LIMITATION ON REMEDIES.
(a) The representations and warranties contained in Articles III and IV
shall survive the Closing and terminate eighteen (18) months after the Closing
Date or, with respect to any claim for indemnification by Buyer based upon
Section 3.28, such representation and warranty shall survive so long as PEI has
any indemnification or any other liability or obligation with respect to the Tax
Credit Contracts. NO ACTION CAN BE BROUGHT WITH RESPECT TO ANY BREACH OF ANY
REPRESENTATION OR WARRANTY ON THE PART OF SELLER OR BUYER UNDER THIS AGREEMENT
UNLESS A WRITTEN NOTICE SPECIFYING THE BREACH OF THE REPRESENTATION OR WARRANTY
FORMING THE BASIS OF SUCH CLAIM HAS BEEN DELIVERED TO THE PARTY ALLEGED TO HAVE
BREACHED SUCH REPRESENTATION OR WARRANTY PRIOR TO THE TERMINATION DATE OF SUCH
REPRESENTATION OR WARRANTY AS DESCRIBED ABOVE. The right to indemnification will
not be affected by any investigation conducted with respect to, or any knowledge
acquired at any time, whether before or after the date hereof or the Closing
with respect to the inaccuracy or accuracy of any such representation or
warranty.
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(b) Without in any way limiting Buyer's rights to indemnification, the
parties recognize that some of the matters as to representations and warranties
made by Seller in this Agreement are outside the knowledge of Seller. The
purpose of the representations and warranties is to allocate the risk of loss in
the event of adverse consequences resulting from any such representation or
warranty being untrue, and to define the rights of the parties in such event, as
provided in this Agreement.
(c) Seller shall not be liable for Losses (as defined below) arising
out of, relating to or attributable to a breach of any representation or
warranty contained in Article III unless and until the aggregate amount of such
Losses exceeds on a cumulative basis $400,000, in which case Buyer shall be
entitled to recover the full amount of such Losses in excess of $400,000.
Subject to the foregoing, Seller shall not be responsible for any Loss with
respect to a breach of or inaccuracy in the representations and warranties set
forth in Section 3.26 except for any Loss arising out of a claim asserted or
brought by (i) any third person or any agency, branch or representative of any
federal, state or local government against PEI or Buyer or (ii) Buyer for
remediation arising out of or related to personal injury, death, damage,
destruction or loss of property, or any contamination of natural resources
(including air, soil, surface water or ground water) based upon a claim made or
asserted by a third party with respect to any such occurrence or event. Subject
to the foregoing, Seller shall not be responsible for any loss with respect to a
breach of or inaccuracy in the representations and warranties set forth in
Section 3.28 to the extent that such breach arises from any affirmative action
taken by PEI (or Buyer) after the Closing Date. In addition, Seller shall not be
liable for any Losses arising out of, relating to or attributable to breaches of
the representations and warranties contained in Sections, 3.5(a), 3.6(a) and
3.7(a) to the extent any such Loss would exceed the Allocated Value for the
asset to which such Loss relates plus the amount of any third party costs or
liabilities incurred by Buyer or PEI with respect thereto.
9.2 INDEMNIFICATION.
(a) Subject to Section 9.1, Seller shall indemnify and hold harmless
Buyer and PEI, and their respective directors, officers, employees, agents and
controlling persons, against any and all losses, liabilities, damages, or
expenses (including,
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without limitation, interest, penalties and reasonable attorney fees) ("Losses")
sustained or incurred by Buyer or PEI directly attributable to (i) any
misrepresentation or breach of any warranty made by Seller herein, (ii) the
breach of any covenant or agreement of Seller set forth herein, and (iii) any
claim for indemnification or similar remedy by the other party to the Tax Credit
Contracts attributable to a (i) Change in Law (as that term is defined in the
Tax Credit Contracts), but not in excess of the allocated value of the Tax
Credit Contracts, or (ii) the breach of any warranty or representation made by
PEI in the Tax Credit Contract except the Credit Calculation Representation set
forth in Section 7.01 thereof with respect to Quarterly Statements for Credit
Payment Periods commencing after the Closing Date.
(b) Buyer shall indemnify and hold harmless Seller against any and all
Losses sustained or incurred by Seller or any affiliate thereof directly
attributable to (i) any misrepresentation or breach of any warranty made by
Buyer herein, (ii) the breach of any covenant or agreement of Buyer set forth
herein, (iii) any claims arising out of or relating to the operation or conduct
of the business of PEI after the Closing Date; (iv) the breach by PEI of the
Credit Calculation Representation set forth in Section 7.01 of the Tax Credit
Contract with respect to Quarterly Statements for Credit Payment Periods
commencing after the Closing Date or the non-payment of amounts owing by PEI
under Section 6.03 of the Tax Credit Contract with respect to any calendar year
commencing on or after January 1, 2000, and (v) any claims asserted against
Seller for indemnification pursuant to the Indemnity Agreement between Seller
and BBD Gas LLC dated as of March 1, 1998 arising out of or related to any
insolvency, bankruptcy, reorganization, dissolution or liquidation of, or any
similar occurrence with respect to, or cessation of existence of, or change of
ownership of, PEI other than the change of ownership contemplated by this
Agreement.
ARTICLE X
TERMINATION
10.1 TERMINATION. This Agreement may be terminated in the following instances:
(a) By written notice from either Buyer or Seller to the other party
hereto if the Closing shall not have occurred on or
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prior to March 20, 2000, unless extended in accordance with the terms of this
Agreement;
(b) By written notice from either Buyer or Seller to the other party
hereto if a non-appealable judgment or order has been entered, against either
party or their affiliates restraining, prohibiting, declaring illegal, or
awarding substantial damages in connection with the transactions contemplated
hereby; or
(c) At any time by the mutual written agreement of Buyer and
Seller.
(d) [Intentionally Omitted]
(e) By written notice from either Buyer or Seller to the other if the
sum of (i) the Purchase Price adjustments made pursuant to Section 5.3 plus (ii)
the aggregate amount of the Purchase Price adjustments proposed by Buyer that
are unresolved equals or exceeds $7,400,000 in the aggregate.
10.2 LIMITATION ON RIGHT TO TERMINATE: EFFECT OF TERMINATION.
(a) Neither Seller nor Buyer shall be allowed to exercise any right of
termination pursuant to Section 10.1 if the event giving rise to the termination
right shall be due to the willful failure of such party seeking to terminate
this Agreement to perform or observe in any material respect any of the
covenants or agreements set forth herein to be performed or observed by such
party.
(b) If this Agreement is terminated as permitted under Section 10.1,
such termination shall be without liability of any party to this Agreement, or
any shareholder, director, officer, employee, agent, servant, consultant or
representative of such party; provided, if such termination shall result from
the willful failure of any party to fulfill a condition to the performance of
the other party or to perform a covenant of this Agreement, then such party
shall be fully liable for any and all damages sustained or incurred by the other
party in connection with such failure. In no event shall either party ever be
entitled to consequential or speculative damages including, without limitation,
lost profits.
(c) Seller and Buyer hereby agree that the provisions of this Section
10.2 and Sections 3.12, 4.5, 12.1 and 12.2 shall
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survive any termination of this Agreement pursuant to the provisions of this
Article X.
ARTICLE XI
POST CLOSING MATTERS
11.1 PRESERVATION OF BOOKS AND RECORDS: ACCESS. For a period of five (5) years
after the Closing Date, Buyer shall, or shall cause PEI to, (a) preserve and
retain all corporate, accounting, legal, tax, litigation and other books and
records of PEI (including, without limitation, any documents relating to any
governmental or non-governmental actions, suits, proceedings or investigations)
relating to the conduct of the business of PEI prior to the Closing Date and (b)
cause PEI to permit Seller and its authorized representatives to have reasonable
access thereto in connection with any legal or arbitration proceedings, tax
audits or governmental investigations or actions involving Seller and subject to
any confidentiality agreement that Buyer or PEI may reasonably request and to
meet with employees of Buyer or PEI on a mutually convenient basis in order to
obtain additional information and explanations with respect to such books and
records. Notwithstanding the foregoing, during such five (5) year period, Buyer
may dispose of any such Records and other information which are offered to, but
not accepted by, Seller. For a period of five (5) years after the Closing Date,
Seller shall preserve and retain all records pertaining to PEI as described in
Section 2.4(a) or (c) and permit Buyer or its representatives reasonable access
thereto for appropriate purposes concerning PEI.
11.2 FURTHER ASSURANCES. After the Closing, Seller and Buyer will take all
appropriate action and execute any documents, instruments or conveyances of any
kind that may be reasonably necessary to effectuate the intent of this
Agreement.
11.3 EMPLOYEE MATTERS.
(a) Buyer will cause PEI to retain in its employ for a period of not
less than six (6) months after the Closing all persons who were employees of PEI
immediately prior to the Closing in the same or comparable positions and at the
same salaries or hourly rates, subject in all respects to the provisions of
Section 11.3(b)(vi) and 11.3(c) hereof.
(b) With respect to each PEI employee:
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(i) Buyer shall waive pre-existing condition requirements,
evidence of insurability provisions, waiting period requirements or any
similar provisions under any welfare benefit plan maintained or
sponsored by Buyer for PEI employees after the Closing Date but only to
the extent such PEI employee had satisfied such requirements under the
appropriate provisions of Seller's such plans as of the Closing Date;
(ii) Seller's plans shall be responsible for expenses covered
by Seller's medical plans which were incurred prior to the Closing
Date. Buyer's plans shall assume responsibility for all health and
accident expenses incurred by PEI employees on and after the Closing
Date in accordance with the terms of such plans, except that Seller
shall be responsible for the hospitalization and related charges
incurred for any PEI employee hospitalized before the Closing Date who
remains continuously hospitalized after the Closing Date until such
employee's date of discharge from the hospital.
(iii) Buyer shall apply toward any deductible requirements and
out-of-pocket maximum limits under its employee welfare benefit plans
any amounts paid by each PEI employee that qualified as such under
Seller's employee welfare benefit plans during the current plan year in
which the Closing occurs.
(iv) Buyer shall recognize for purposes of participation,
eligibility and vesting (but not for purposes of benefit accrual and
compensation arrangements) under its employee benefit plans (including
vacation), the service of any PEI employee with Seller or its
affiliates prior to the Closing Date.
(v) Buyer shall cause PEI to be responsible for accrued
vacation, sick days and personal days earned by PEI employees prior to
the Closing Date but not taken as of the Closing.
(vi) Nothing contained in this Section 11.3 shall be deemed to
constitute a contract of employment, and Buyer or PEI may terminate the
employment of, or change the terms and conditions of the employment of,
any such PEI employees at such time and under such circumstances as
Buyer or PEI deems appropriate, subject to Buyer's obligations under
Section 11.3(c) as a result of such termination.
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(vii) Nothing contained in this Section 11.3(b) shall in any
way obligate Buyer to provide PEI employees with benefits greater than
those which Buyer currently provides to its employees generally. Seller
and Buyer understand that Buyer may not be able to provide PEI
employees with the same health and medical insurance which Buyer
provides to its employees generally but that Buyer will provide
coverage after the Closing either from a separate insurance arrangement
or through Seller's agreement to cover such employees at Buyer's cost
for up to sixty (60) days, with the charges being as set forth in
Schedule 11.3(b).
(c) If Buyer or PEI terminates the employment of any PEI employee other
than for Cause within six (6) months following the Closing Date, or if any PEI
employee resigns from his employment within six (6) months following the Closing
Date in response to a reduction in his base compensation to a rate less than
that in effect immediately prior to the Closing Date, Buyer shall pay Seller for
any severance pay Seller is obligated to pay such employee as a result of such
termination under Seller's Change in Control Protection Plan for Employees of
Peake Energy, Inc. (the "Protection Plan"). In each case, such payment by Buyer
to Seller shall be made no later than three (3) business days after Buyer is
notified of Seller's determination that such PEI employee is entitled to
severance pay under the Protection Plan and the amount thereof. As used herein,
"Cause" shall have the meaning ascribed to such term in the Protection Plan.
11.4 NONSOLICITATION. Seller agrees that neither it or any of its controlling
persons or affiliates will, during and for a two (2) year period commencing with
the Closing Date, directly or indirectly solicit or induce any Key Employee of
PEI to terminate his employment or offer employment to or hire or engage any
such person.
ARTICLE XII
MISCELLANEOUS
12.1 CONFIDENTIALITY. Buyer and Seller shall hold in strict confidence all
aspects of the transactions contemplated by this Agreement and all information
and data concerning PEI and its business obtained in connection with the
transactions contemplated by this Agreement (other than information and data
that becomes generally available to the public other than
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through disclosure by a party hereto or its partners, officers, employees or
representatives) and without the prior written consent of the other party hereto
neither Buyer nor Seller shall disclose any such information to anyone other
than to its officers, employees and representatives; provided, however, the
foregoing shall not restrict disclosures by Buyer or Seller in compliance with
applicable securities or other laws in such party's discretion or in compliance
with existing loan or other agreements binding such party or any affiliates
thereof. The aforesaid shall terminate as the information and data in question
become generally available to the public other than through the breach by either
party or its partners, officers, employees or representatives of said
obligation. If this Agreement is terminated for any reason, Buyer shall, at
Seller's request, promptly return to Seller all information and data furnished
or made available by Seller to Buyer and obtained by Buyer in the course of its
investigation of the business of PEI and Buyer agrees not to retain copies of
any such information or data in such event, to keep all such information and
data confidential, and not to disclose any such information or data to any third
party without obtaining the prior written consent of Seller to such disclosure
unless such information and data have become generally available to the public
other than through disclosure by Buyer or its officers, employees or
representatives or unless otherwise required under applicable securities or
other laws or by existing loan or other agreements binding such party (or its
affiliated companies).
12.2 EXPENSES. Except as specifically provided herein, each party hereto shall
pay all legal and other costs and expenses incurred by such party or any of its
affiliates in connection with this Agreement and the transactions contemplated
hereby.
12.3 INDEPENDENT INVESTIGATION. Buyer acknowledges and confirms that in making
the decision to enter into this Agreement and to consummate the transactions
contemplated hereby, it has relied solely on (a) the representations,
warranties, covenants and agreements of Seller set forth in this Agreement and
(b) its own independent investigation, analysis and evaluation of PEI and its
properties (including Buyer's own estimate and appraisal of the extent and value
of PEI's hydrocarbon reserves, pipelines and contracts), business, financial
condition, operations and prospects.
12.4 SCOPE OF REPRESENTATIONS. Except to the extent expressly set forth in this
Agreement, Seller makes no
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representations or warranties whatsoever and disclaims all liability and
responsibility for any other representation, warranty, statement or information
made or communicated (orally or in writing) to Buyer. Without limiting the
generality of the foregoing, except as set forth in Article III, NO
REPRESENTATIONS OR WARRANTIES, EITHER EXPRESS OR IMPLIED, ARE MADE WITH RESPECT
TO THE MERCHANTABILITY, USEFULNESS OR SUITABILITY FOR ANY PURPOSE OF ANY
PERSONAL PROPERTY OF PEI, INCLUDING, WITHOUT LIMITATION (a) ANY IMPLIED OR
EXPRESS WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, (b) ANY
RIGHTS OF BUYER UNDER APPROPRIATE STATUTES TO CLAIM DIMINUTION OF CONSIDERATION
AND (c) ANY CLAIM BY BUYER FOR DAMAGES BECAUSE OF DEFECTS, WHETHER KNOWN OR
UNKNOWN, WITH RESPECT TO SUCH PERSONAL PROPERTY, IT BEING UNDERSTOOD THAT,
EXCEPT AS AFORESAID, SUCH PERSONAL PROPERTY SHALL EXIST IN ITS PRESENT CONDITION
AND STATE OF REPAIR, "AS IS" AND "WHERE IS", WITH ALL FAULTS.
12.5 NOTICES. Any notice, request, instruction, correspondence or other
communication to be given or made hereunder by either party to the other (herein
collectively called "Notice") shall be in writing and (a) delivered by hand, (b)
mailed by certified mail, postage prepaid and return receipt requested, (c) sent
by telecopier, or (d) sent by Express Mail, Federal Express, or other courier
delivery service, as follows:
If to Buyer, addressed to:
North Coast Energy, Inc.
1993 Case Parkway
Twinsburg, Ohio 44087-2343
Attention: Omer Yonel, Chief Executive Officer
Telephone: (330) 425-2330
Fax: (330) 405-3298
If to Seller, addressed to:
Belden & Blake Corporation
5200 Stoneham Road
North Canton, Ohio 44720
Attention: Joseph M. Vitale
Telephone: (330) 499-1660
Fax: (330) 497-5470
Notice given by hand, Express Mail, Federal Express or other courier delivery
service or by mail shall be effective upon actual receipt. Notice given by
telecopier shall be effective
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<PAGE> 42
upon actual receipt if received during the recipient's normal business hours, or
at the beginning of the recipient's next business day after receipt if not
received during the recipient's normal business hours. All Notices by telecopier
shall be confirmed promptly after transmission in writing by Certified Mail or
personal delivery. No Notice shall be given to or by PEI. Any party may change
any address to which Notice is to be given to it by giving Notice as provided
above of such change of address.
12.6 GOVERNING LAW. THE PROVISIONS OF THIS AGREEMENT, THE SCHEDULES HERETO, AND
THE DOCUMENTS DELIVERED PURSUANT HERETO SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF OHIO (EXCLUDING ANY CONFLICTS-OF-LAW
RULE OR PRINCIPLE THAT MIGHT REFER SUCH MATTERS TO THE LAWS OF ANOTHER
JURISDICTION).
12.7 ENTIRE AGREEMENT: AMENDMENTS AND WAIVERS. This Agreement, together with all
Schedules hereto, constitutes the entire agreement between the parties hereto
pertaining to the subject matter hereof and supersedes all prior agreements,
understandings, negotiations and discussions, whether oral or written, of the
parties. No supplement, modification or waiver of this Agreement shall be
binding unless executed in writing by the party to be bound thereby. The rights
and remedies of the parties to this Agreement are cumulative and not
alternative. Neither the failure nor any delay by any party in exercising any
right, power, or privilege under this Agreement or the documents referred to in
this Agreement will operate as a waiver of such right, power, or privilege, and
no single or partial exercise of any such right, power, or privilege will
preclude any other or further exercise of such right, power, or privilege or the
exercise of any other right, power, or privilege. To the maximum extent
permitted by applicable law, (a) no claim or right arising out of this Agreement
or the documents referred to in this Agreement can be discharged by one party,
in whole or in part, by a waiver or renunciation of the claim or right unless in
writing signed by the other party; (b) no waiver that may be given by a party
will be applicable except in the specific instance for which it is given; and
(c) no notice to or demand on one party will be deemed to be a waiver of any
obligation of such party or of the right of the party giving such notice or
demand to take further action without notice or demand as provided in this
Agreement or the documents referred to in this Agreement.
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<PAGE> 43
12.8 BINDING EFFECT AND ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective permitted
successors and assigns. Neither this Agreement nor any of the rights, benefits
or obligations hereunder shall be assigned, by operation of law or otherwise, by
any party hereto prior to the Closing without the prior written consent of the
other party. Except as expressly provided herein, nothing in this Agreement is
intended to confer upon any person, firm, corporation or legal entity other than
the parties hereto and their respective permitted successors and assigns, any
rights, benefits or obligations hereunder.
12.9 SEVERABILITY. If any one or more of the provisions contained in this
Agreement or in any other document delivered pursuant hereto shall, for any
reason, be held to be invalid, illegal or unenforceable in any material respect,
such invalidity, illegality or unenforceability shall not affect any other
provision of this Agreement or any other such document. If the final judgment of
a court of competent jurisdiction declares that any term or provision hereof is
invalid or unenforceable, the parties agree that the court making the
determination of invalidity or unenforceability shall have the power to reduce
the scope, duration or area of the term or provision, to delete specific words
or phrases or to replace any invalid or unenforceable term or provision with a
term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision, and
this Agreement shall be enforceable as so modified after the expiration of the
time within which the judgment may be appealed.
12.10 CONSTRUCTION. The language used in this Agreement, including the
documents, instruments, agreements, exhibits, schedules and annexes hereto will
be deemed to be the language chosen by the parties to express their mutual
intent, and no rule of strict construction shall be applied against any party.
Any reference to any federal, state, local or foreign statute or law shall be
deemed also to refer to all rules and regulations promulgated thereunder, unless
the context requires otherwise. The parties intend that each representation,
warranty and covenant contained herein shall have independent significance. If
any party has breached any representation, warranty or covenant contained herein
in any respect, the fact that there exists another representation, warranty or
covenant relating to the same subject matter (regardless of the relative levels
of specificity) which the party has not breached shall not detract
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<PAGE> 44
from or mitigate the fact that the party is in breach of the first
representation, warranty or covenant.
12.11 INCORPORATION OF EXHIBITS, ANNEX AND SCHEDULES. The Exhibits, Annex and
Schedules identified in this Agreement are incorporated herein by reference and
made a party hereof.
12.12 SUBMISSION TO JURISDICTION. Each of the parties submits to the exclusive
jurisdiction of any state or federal court sitting within the Northern District
of Ohio, in any action or proceeding arising out of or relating to this
Agreement, agrees that all claims in respect of the action or proceeding may be
heard and determined in any such court and agrees not to bring any action or
proceeding arising out of or relating to this Agreement in any other court. Each
of the parties waives any defense of inconvenient forum to the maintenance of
any action or proceeding so brought and waives any bond, surety or other
security that might be required of any other party with respect thereto.
12.13 SECTION HEADINGS, CONSTRUCTION. The headings of Sections in this Agreement
are provided for convenience only and will not affect its construction or
interpretation. All references to "Section" or "Sections" refer to the
corresponding Section or Sections of this Agreement. All words used in this
Agreement will be construed to be of such gender or number as the circumstances
require. Unless otherwise expressly provided, the word "including" does not
limit the preceding words or terms.
12.14 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, which taken together shall constitute one and the same instrument
and each of which shall be considered an original for all purposes.
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<PAGE> 45
12.15 PUBLIC ANNOUNCEMENTS. Subject to applicable laws, Buyer and Seller agree
(and further agree to cause their respective employees, agents and
representatives) (i) to keep confidential the contents of this Agreement and the
transactions contemplated hereby, as well as all information received or
generated in connection herewith, and (ii) not to issue a press release or any
other public announcement with respect to this Agreement without the prior
written consent of the other party hereto, with it being further understood and
agreed that the contents of any such press release or such public announcement
shall be mutually agreed by both parties hereto.
BELDEN & BLAKE CORPORATION NORTH COAST ENERGY, INC.
By: /s/John L. Schwager By: /s/Omer Yonel
------------------------------------ -----------------------
Its: Chief Executive Officer Its: Chief Executive Officer
----------------------------------- -----------------------
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<PAGE> 1
Exhibit 4.1
THIS NON-NEGOTIABLE SUBORDINATED PROMISSORY NOTE (THIS "NOTE") AND THE
INDEBTEDNESS EVIDENCED HEREBY, AND THE EXERCISE OF RIGHTS AND REMEDIES
HEREUNDER, ARE SUBORDINATE IN THE MANNER AND TO THE EXTENT SET FORTH IN THAT
CERTAIN SUBORDINATION AGREEMENT, DATED AS OF MARCH 17, 2000, BY AND BETWEEN ING
(U.S.) CAPITAL LLC (SUCCESSOR BY MERGER TO ING (U.S.) CAPITAL CORPORATION) AS
AGENT, NUON INTERNATIONAL, B.V., AND NORTH COAST ENERGY, INC.
THIS NON-NEGOTIABLE SUBORDINATED PROMISSORY NOTE (THIS "NOTE") HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT
BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS A REGISTRATION STATEMENT
UNDER THE ACT WITH RESPECT TO THIS NOTE HAS BECOME EFFECTIVE OR UNLESS THE
HOLDER ESTABLISHES TO THE SATISFACTION OF THE MAKER THAT AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE.
NON-NEGOTIABLE SUBORDINATED PROMISSORY NOTE
U.S. $48,500,000
March 17, 2000
FOR VALUE RECEIVED, the undersigned, NORTH COAST ENERGY, INC., a
Delaware corporation (hereinafter "Maker"), hereby promises to pay to the order
of NUON INTERNATIONAL PROJECTS, B.V., (hereinafter called the "Holder") whose
address is Utrechtseweg 68, 6812 AH Arnhem, The Netherlands, the principal sum
of Forty-Eight Million Five Hundred Thousand Dollars ($48,500,000), in lawful
money of the United States of America, as hereinafter provided.
1. INTEREST.
(a) Interest hereunder shall accrue on the unpaid principal
balance of this Note beginning on the date hereof, and continuing thereafter
until the Stated Maturity (as defined below). All accrued and unpaid interest
shall be paid by the Maker to Holder semiannually on each [August 31] and
[February 28] beginning on [August 31, 2000] until the principal balance due
under this Note is paid in full. If the principal balance of this Note is
prepaid pursuant to Section 2 hereof, all accrued and unpaid interest shall be
paid by the Maker to Holder on the date of such prepayment. The interest rate
payable on the principal amount of this Note from time to time outstanding shall
be the then Applicable LIBOR Rate as determined on each Interest Determination
Date.
(b) Interest on the unpaid principal balance shall be computed
on a daily basis of 1/360th of the annual rate.
<PAGE> 2
2. PAYMENT TERMS. Subject to the rights of acceleration set forth
herein, the entire principal balance hereof of Forty-Eight Million Five Hundred
Thousand Dollars ($48,500,000), plus all accrued and unpaid interest thereon,
shall be payable in a single balloon payment by Maker to the Holder on [February
28, 2015] ("Stated Maturity"). Upon the occurrence of an Event of Default (as
defined below), the Holder may, at its option, declare the outstanding principal
balance of this Note (and interest, if any) to be immediately due and payable,
together with all costs and fees, including reasonable attorneys' fees incurred
by the Holder in collecting or enforcement thereof. At any time upon ten (10)
days prior written notice to the Holder, this Note may be prepaid by Maker in
whole or in part without penalty or premium. Any such permitted prepayment under
this Note shall be applied first to accrued and unpaid interest on the principal
balance outstanding and then to principal.
3. DEFINITIONS. As used herein, the following capitalized terms shall
have the following meanings:
(a) "Applicable LIBOR Rate" means the LIBOR Rate PLUS 2.30% per annum.
(b) "Business Day" shall mean any day which is neither a Saturday or
Sunday nor a legal holiday on which banks are authorized or required to be
closed in New York, New York.
(c) "Event of Default" means the occurrence of any of the following
events (i) failure to pay when due any principal or interest on this Note, or
any other sum due hereunder, within five (5) days after the same becomes due;
(ii) upon a breach or default of any covenant of Maker set forth in this Note;
(iii) Maker becomes insolvent or bankrupt or admits in writing its inability to
pay its debts as they become due or makes an assignment for the benefit of
creditors, or if a trustee or receiver is appointed for Maker or for the major
part of its property and is not discharged within sixty (60) days after such
appointment; (iv) bankruptcy, reorganization, arrangement or insolvency
proceedings, or other proceedings for relief under any bankruptcy or similar
laws for the relief of debtors, are instituted by or against Maker and, if
instituted against Maker, are consented to or are not dismissed within sixty
(60) days after such institution or (v) an Event of Default shall have occurred
under that certain Credit Agreement, dated as of February 9, 1998, by and
between ING (U.S.) Capital LLC, successor in interest by merger to ING (U.S.)
Capital Corporation, as Agent and Lender ("ING"), and the Maker, which Event of
Default has not been waived in writing by ING within ten (10) days after the
occurrence thereof.
(d) "LIBOR Rate" means the per annum interest rate equal to the average
for the applicable day (rounded upward, if necessary, to the nearest next 1/100
of 1%) of those LIBOR (6 month) rates quoted on the REUTERS SCREEN "LIBOR" page
on each September 1 and March 1, as applicable, or the next succeeding Business
Day if such rates are not quoted by REUTERS on such date (each an "Interest
Determination Date"). If such rate is not available, the LIBOR Rate for purposes
of this Note shall be a rate of interest per annum agreed to by the Maker and
Holder. The Libor Rate from the date of this Note to the initial Interest
Determination Date shall be the per annum interest rate equal to the average
(rounded upward if necessary, to the nearest next 1/100 of 1%) of those LIBOR (6
month) rates quoted on the REUTERS SCREEN "LIBOR" page on the date of this Note.
2
<PAGE> 3
4. PAYMENTS. All payments hereunder will be made to the address noted
herein for the Holder, or such other address designated by the Holder for such
payments, in such coin or currency of the United States of America as at the
time of payment shall be legal tender for the payment of public and private
debts, upon presentation hereof for notation of each payment or upon surrender
hereof.
5. JUNIOR LIEN. Maker agrees that its obligations to the Holder under
this Note may, at the election of the Holder at any time, be secured by a lien
on any or all of the assets of Peake Energy, Inc., which lien shall be
subordinated to the liens of ING (other than wells and other property interests
that are subject to any Section 29 Tax Credit Agreement with BBD Gas LLC). Maker
agrees that if Holder so elects, Maker will execute and deliver such documents,
and otherwise take such other action and execute such assignments or other
instruments or documents, each as Holder may reasonably request to evidence,
perfect or record such junior liens on the assets of Peake Energy, Inc.
6. INTEREST RATE LIMITATION. Nothing herein contained, nor any
transaction related thereto, shall be construed or so operate as to require
Maker to pay interest at a greater rate than is now lawful or in such case to
contract for, or to make any payment, or to do any act contrary to applicable
law. Should any interest or other charges paid by Maker, or parties liable for
the payment of this Note, in connection with the indebtedness evidenced by this
Note or any other document delivered in connection with this Note, result in the
computation or earning of interest in excess of the maximum legal rate of
interest that is legally permitted under applicable law, then any and all such
excess shall be, and the same hereby is, waived by the Holder, and any and all
such excess shall be automatically credited against and in reduction of the
balance due under this Note, and the portion of said excess that exceeds the
balance due under this Note shall be paid by the Holder to Maker.
7. NEW SENIOR CREDIT FACILITY. In the event that Maker refinances or
replaces its senior credit facility with ING, Maker will endeavor using
commercially reasonable efforts to have that new lender repay as much of the
principal balance due under this Note as is reasonably possible pursuant to
terms which are reasonably acceptable to Maker and Holder. At the time of such
repayment, if any, the Maker and Holder may renegotiate the terms of this Note.
8. GOVERNING LAW AND SEVERABILITY. The provisions of this Note shall be
construed according to the laws of the State of New York without regard to
conflict of laws principles. If any provision hereof is in conflict with any
statute or rule of law of the State of New York or is otherwise unenforceable
for any reason whatsoever, then such provision shall be ineffective to the
extent of such invalidity, and shall be deemed separable from and shall not
invalidate any other provision of this Note.
3
<PAGE> 4
9. BINDING EFFECT. This Note shall be shall be binding upon Maker and
Maker's successors and assigns.
NORTH COAST ENERGY, INC.
("Maker")
/s/ Omer Yonel
-------------------------------------
Name: Omer Yonel
Title: Chief Executive Officer
Maker's Address:
North Coast Energy, Inc.
1993 Case Parkway
Twinsburg, Ohio 44087
4
<PAGE> 5
ACKNOWLEDGED, CONSENTED AND AGREED,
this 17th day of March, 2000:
NUON INTERNATIONAL PROJECTS, B.V.
as Holder
By: /s/ A. Goedmakers
-------------------------------
Name: A. Goedmakers
Title: Director
5
<PAGE> 1
Exhibit 4.2
THIS NON-NEGOTIABLE SUBORDINATED CONVERTIBLE PROMISSORY NOTE (THIS "NOTE") AND
THE INDEBTEDNESS EVIDENCED HEREBY, AND THE EXERCISE OF RIGHTS AND REMEDIES
HEREUNDER, ARE SUBORDINATE IN THE MANNER AND TO THE EXTENT SET FORTH IN THAT
CERTAIN SUBORDINATION AGREEMENT, DATED AS OF MARCH 17, 2000, BY AND BETWEEN ING
(U.S.) CAPITAL LLC (SUCCESSOR BY MERGER TO ING (U.S.) CAPITAL CORPORATION) AS
AGENT, NUON INTERNATIONAL, B.V., AND NORTH COAST ENERGY, INC.
THIS NON-NEGOTIABLE SUBORDINATED CONVERTIBLE PROMISSORY NOTE (THIS "NOTE") HAS
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS A REGISTRATION
STATEMENT UNDER THE ACT WITH RESPECT TO THIS NOTE HAS BECOME EFFECTIVE OR UNLESS
THE HOLDER ESTABLISHES TO THE SATISFACTION OF THE MAKER THAT AN EXEMPTION FROM
SUCH REGISTRATION IS AVAILABLE.
NON-NEGOTIABLE SUBORDINATED CONVERTIBLE PROMISSORY NOTE
U.S. $24,000,000
March 17, 2000
FOR VALUE RECEIVED, the undersigned, NORTH COAST ENERGY, INC., a
Delaware corporation (hereinafter "Maker"), hereby promises to pay to the order
of NUON INTERNATIONAL PROJECTS, B.V., (hereinafter called the "Holder") whose
address is Utrechtseweg 68, 6812 AH Arnhem, The Netherlands, the principal sum
of Twenty-Four Million Dollars ($24,000,000), in lawful money of the United
States of America, as hereinafter provided.
1. INTEREST.
(a) Interest hereunder shall accrue on the unpaid principal
balance of this Note beginning on the date hereof, and continuing thereafter
until the Stated Maturity (as defined below). All accrued and unpaid interest
shall be paid by the Maker to Holder semiannually on each [August 31] and
[February 28] beginning on [August 31, 2000] until the principal balance due
under this Note is paid in full. If the principal balance of this Note is
converted pursuant to Section 7 hereof or prepaid pursuant to Section 2 hereof,
all accrued and unpaid interest shall be paid by the Maker to Holder on the date
of such conversion or prepayment. The interest rate payable on the principal
amount of this Note from time to time outstanding shall be the then Applicable
LIBOR Rate as determined on each Interest Determination Date.
(b) Interest on the unpaid principal balance shall be computed
on a daily basis of 1/360th of the annual rate.
2. PAYMENT TERMS. Subject to the rights of acceleration and conversion
set forth herein, the entire principal balance hereof in the amount of Twenty
Four Million Dollars
<PAGE> 2
($24,000,000), plus all accrued and unpaid interest thereon, shall be payable in
a single balloon payment by Maker to the Holder on [February 28, 2015] ("Stated
Maturity"). Upon the occurrence of an Event of Default (as defined below), the
Holder may, at its option, declare the outstanding principal balance of this
Note (and interest, if any) to be immediately due and payable, together with all
costs and fees, including reasonable attorneys' fees incurred by the Holder in
collecting or enforcement thereof. At any time upon ten (10) days prior written
notice to the Holder (but without limiting, modifying or abrogating the Holder's
conversion rights set forth in Section 7 hereof), this Note may be prepaid by
Maker in whole or in part without penalty or premium. Any such permitted
prepayment under this Note shall be applied first to accrued and unpaid interest
on the principal balance outstanding and then to principal.
3. DEFINITIONS. As used herein, the following capitalized terms shall
have the following meanings:
(a) "Applicable LIBOR Rate" means the LIBOR Rate PLUS 2.30% per annum.
(b) "Business Day" shall mean any day which is neither a Saturday or
Sunday nor a legal holiday on which banks are authorized or required to be
closed in New York, New York.
(c) "Event of Default" means the occurrence of any of the following
events (i) failure to pay when due any principal or interest on this Note, or
any other sum due hereunder, within five (5) days after the same becomes due;
(ii) upon a breach or default of any covenant of Maker set forth in this Note;
(iii) Maker becomes insolvent or bankrupt or admits in writing its inability to
pay its debts as they become due or makes an assignment for the benefit of
creditors, or if a trustee or receiver is appointed for Maker or for the major
part of its property and is not discharged within sixty (60) days after such
appointment; (iv) bankruptcy, reorganization, arrangement or insolvency
proceedings, or other proceedings for relief under any bankruptcy or similar
laws for the relief of debtors, are instituted by or against Maker and, if
instituted against Maker, are consented to or are not dismissed within sixty
(60) days after such institution or (v) an Event of Default shall have occurred
under that certain Credit Agreement, dated as of February 9, 1998, by and
between ING (U.S.) Capital LLC, successor in interest by merger to ING (U.S.)
Capital Corporation, as Agent and Lender ("ING"), and the Maker, which Event of
Default has not been waived in writing by ING within ten (10) days after the
occurrence thereof.
(d) "LIBOR Rate" means the per annum interest rate equal to the average
for the applicable day (rounded upward, if necessary, to the nearest next 1/100
of 1%) of those LIBOR (6 month) rates quoted on the REUTERS SCREEN "LIBOR" page
on each September 1 and March 1, as applicable, or the next succeeding Business
Day if such rates are not quoted by REUTERS on such date (each an "Interest
Determination Date"). If such rate is not available, the LIBOR Rate for purposes
of this Note shall be a rate of interest per annum agreed to by the Maker and
Holder. The Libor Rate from the date of this Note to the initial Interest
Determination Date shall be the per annum interest rate equal to the average
(rounded upward if necessary, to the nearest next 1/100 of 1%) of those LIBOR (6
month) rates quoted on the REUTERS SCREEN "LIBOR" page on the date of this Note.
2
<PAGE> 3
4. PAYMENTS. All payments hereunder will be made to the address noted
herein for the Holder, or such other address designated by the Holder for such
payments, in such coin or currency of the United States of America as at the
time of payment shall be legal tender for the payment of public and private
debts, upon presentation hereof for notation of each payment or upon surrender
hereof.
5. JUNIOR LIEN. Maker agrees that its obligations to the Holder under
this Note may, at the election of the Holder at any time, be secured by a lien
on any or all of the assets of Peake Energy, Inc., which lien shall be
subordinated to the liens of ING (other than wells and other property interests
that are subject to any Section 29 Tax Credit Agreement with BBD Gas LLC). Maker
agrees that if Holder so elects, Maker will execute and deliver such documents,
and otherwise take such other action and execute such assignments or other
instruments or documents, each as Holder may reasonably request, to evidence,
perfect or record such junior liens on the assets of Peake Energy, Inc.
6. INTEREST RATE LIMITATION. Nothing herein contained, nor any
transaction related thereto, shall be construed or so operate as to require
Maker to pay interest at a greater rate than is now lawful or in such case to
contract for, or to make any payment, or to do any act contrary to applicable
law. Should any interest or other charges paid by Maker, or parties liable for
the payment of this Note, in connection with the indebtedness evidenced by this
Note or any other document delivered in connection with this Note, result in the
computation or earning of interest in excess of the maximum legal rate of
interest that is legally permitted under applicable law, then any and all such
excess shall be, and the same hereby is, waived by the Holder, and any and all
such excess shall be automatically credited against and in reduction of the
balance due under this Note, and the portion of said excess that exceeds the
balance due under this Note shall be paid by the Holder to Maker.
7. CONVERSION RIGHT. The Holder hereof, subject to the provisions
hereinafter set forth, has the right (the "Conversion Right"), exercisable at
any time after the date hereof, to convert any portion up to an aggregate
maximum of $24,000,000 of the principal amount of this Note remaining unpaid
into shares of Maker's Common Stock, par value $0.01 per share (the "Common
Shares"), at the price of Two and 50/100 Dollars ($2.50) per Common Share (the
"Conversion Price Per Share"). This Note may be converted by the Holder hereof,
subject to the conditions set forth herein, upon (x) surrender of this Note,
properly endorsed or (y) if this Note has been lost, misplaced or destroyed,
then upon delivery of the Holder to Maker of an affidavit containing a statement
to that effect, in form reasonable acceptable to Maker, [and, in either case,
before 5:00 p.m. EST time on February 28, 2015,] at the principal office of
Maker in Twinsburg, Ohio, or at such other office or agency in the Continental
United States as Maker may designate (such surrender is hereinafter referred to
as the "Conversion of this Note").
(a) SHARE CERTIFICATES. After proper notice has been given,
and subject to and conditioned upon approval by the holders of a majority of the
outstanding common stock of Maker of the conversion of this Note and the
issuance of common stock of the Maker in accordance with applicable law, stock
exchange rules and its certificate of incorporation and by-laws, then upon
surrender of this Note, properly endorsed, by the Holder (or the certificate
referred to above, if this Note has been lost, misplaced or destroyed), together
with payment of any applicable taxes, the
3
<PAGE> 4
Holder shall be entitled to receive, as soon as practicable after conversion of
this Note, a share certificate or certificates for the number of duly authorized
and validly issued, fully paid and nonassessable Common Shares into which this
Note has been converted at the Conversion Price Per Share, registered in the
Holder's name.
(b) NEW NOTE. Should this Note be converted, the Holder shall
be entitled to receive a new Note for the principal amount in respect of which
this Note shall not have been converted. Any such new Note shall be identical to
this Note, except as to the principal amount thereof, and except that such new
Note shall have an adjusted conversion right to reflect the maximum principal
amount of this Note, if any, that may be converted into Common Shares pursuant
to the limitations set forth in this Section 7.
(c) DISCLOSURE. Upon receipt of the notice of the Holder's
intent to convert this Note, Maker, prior to such conversion, will give to the
Holder copies of Maker's most recent (i) Annual Report to its Stockholders, (ii)
Report on Form 10-K and any Forms 8-K and 10-Q filed subsequent thereto, (iii)
Proxy Statement to stockholders, and (iv) such other information concerning
Maker as has been reasonably requested by the Holder. The Holder shall be
provided the opportunity to discuss such materials and the current operations of
Maker generally with its executive and financial officers, its legal counsel and
its independent accountants and to ask questions and satisfy itself as to the
accuracy of the information contained in such materials. The Holder covenants
and agrees by acceptance hereof that the Holder shall, prior to the conversion
of this Note, confirm in writing that it has had access to the type of
information concerning Maker as would be required in a registration statement on
Form S-1 or such other Form as is appropriate at the time.
(d) DATE OF CONVERSION. If any certificate for Common Shares
is issued to the Holder, the Holder shall, for all purposes, be deemed to have
become the holder of record of such shares on the date on which this Note (or a
certificate in lieu thereof) was surrendered for conversion and any applicable
taxes were paid, irrespective of the date of issue or delivery of the share
certificate(s), except that if the date of such surrender and payment is a date
when the stock transfer books of Maker are closed, the Holder shall be deemed to
have become the holder of such shares at the close of business on the next
succeeding date on which the stock transfer books are open.
(e) REPRESENTATIONS AND DELIVERIES REQUIRED OF THE HOLDER. The
Holder shall not have the right to convert this Note, and Maker shall not be
obligated to deliver shares of Common Stock as provided herein, unless the
Holder represents and warrants, and agrees with Maker in writing (a) that the
shares of Common Stock to be delivered to the Holder upon conversion of this
Note are being acquired by the Holder for its account, for investment and not
with a view to or for resale or transfer in connection with the distribution
thereof, and not with any present intention of distributing or reselling such
shares of Common Stock, and (b) that the Holder will not sell, transfer, pledge
or otherwise dispose of any shares of Common Stock unless the sale or other
disposition thereof is pursuant to an effective registration statement under the
Act (which includes a definitive prospectus meeting the requirements of Section
10(a) of the Act) or the Holder has established to the satisfaction of Maker
that no such registration is required under the Act or the rules and regulations
in effect thereunder.
4
<PAGE> 5
(f) RESERVATION OF COMMON SHARES. Maker shall reserve and at
all times hold and keep available, free of preemptive rights, for the purpose of
providing for the conversion of this Note then outstanding and in effect, such
number of Common Shares (or other shares substituted therefor as hereinbefore
provided) as shall, from time to time, be sufficient for such conversion of this
Note.
(g) EXPENSES. All expenses of conversion, including the costs
of issuance of certificates, shall be borne by Maker.
(h) REGISTRATION RIGHTS. Holder shall have the rights to
request registration of the shares of Common Stock issued hereunder in
accordance with the provisions of Exhibit A attached hereto and made a part
hereof.
8. NEW SENIOR CREDIT FACILITY. In the event that Maker refinances or
replaces its senior credit facility with ING, Maker will endeavor using
commercially reasonable efforts to have that new lender repay as much of the
principal balance due under this Note as is reasonably possible pursuant to
terms which are reasonably acceptable to Maker and Holder. At the time of such
repayment, if any, the Maker and Holder may renegotiate the terms of this Note.
9. GOVERNING LAW AND SEVERABILITY. The provisions of this Note shall be
construed according to the laws of the State of New York without regard to
conflict of laws principles. If any provision hereof is in conflict with any
statute or rule of law of the State of New York or is otherwise unenforceable
for any reason whatsoever, then such provision shall be ineffective to the
extent of such invalidity, and shall be deemed separable from and shall not
invalidate any other provision of this Note.
10. BINDING EFFECT. This Note shall be shall be binding upon Maker and
Maker's successors and assigns.
NORTH COAST ENERGY, INC.
("Maker")
/s/ Omer Yonel
-------------------------------------
Name: Omer Yonel
Title: Chief Executive Officer
Maker's Address:
North Coast Energy, Inc.
1993 Case Parkway
Twinsburg, Ohio 44087
5
<PAGE> 6
ACKNOWLEDGED, CONSENTED AND AGREED,
this 17th day of March, 2000:
NUON INTERNATIONAL PROJECTS, B.V.
as Holder
By: /s/ A. Goedmakers
------------------------------
Name: A. Goedmakers
Title: Director
6
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Exhibit 99.1
CONTACT: North Coast Energy, Inc.
Shareholder Services
(330) 425-2330
(800) 645-6427
NORTH COAST ENERGY ACQUIRES PEAKE ENERGY
IN A MAJOR $72.5 MILLION TRANSACTION
Company Becomes one of the Largest Natural Gas Producers in Appalachian Basin
TWINSBURG, OHIO, March 20, 2000 - NORTH COAST ENERGY, INC. (Nasdaq: NCEB),
announced today that it has completed the purchase of Peake Energy, Inc., from
Belden & Blake Corporation for $72.5 million. The all-cash transaction is
expected to immediately benefit net earnings, cash flow and EBITDA.
Peake Energy's properties in West Virginia and Kentucky represent approximately
81 Bcfe of proven natural gas reserves, 1,900 wells and over 900 miles of
natural gas gathering lines, including a 500-mile system serving West Virginia's
largest industrial gas consumer--thereby more than doubling North Coast's
production and reserves. This significant transaction makes North Coast Energy
one of the largest producers of natural gas in the Appalachian Basin. North
Coast's assets in Ohio, Pennsylvania, West Virginia and Kentucky now represent
approximately 140 Bcfe of proven natural gas reserves, 4,000 wells and 1,600
miles of natural gas gathering and transportation lines. Daily gross production
will increase to over 33 million cubic feet of natural gas equivalents.
"The acquisition of Peake Energy provides North Coast an ideal foothold to
expand our Appalachian operations, gas marketing, and drilling and development
opportunities.", said Omer Yonel, North Coast Energy's Chief Executive Officer.
He continued, "Peake's low risk core natural gas production and development
drilling are a perfect compliment to our existing resource base and growth
strategy. In addition, Peake's large acreage position is ideally situated to
explore the potential related to the very large recent discoveries in West
Virginia's Rome Trough." Mr. Yonel concluded, "We will recognize immediate
benefits in terms of revenues, operating margins and net income. Further, I want
to point out that while a transaction of this magnitude makes North Coast Energy
a bigger company, we are resolute in our commitment to make it an even better,
more profitable one as well. While the ink is drying on the closing
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documents of this acquisition, the synergies and opportunities for the new North
Coast Energy began with an integration process started three months ago in
preparation for this day ".
The purchase of the stock of Peake Energy was completed through financing
provided by NUON N.V., North Coast's majority stockholder and strategic partner.
NUON is the largest utility company in the Netherlands with over five million
connections to industrial, commercial and residential customers.
North Coast Energy, Inc., an affiliate of NUON International bv, is an
independent oil and gas exploration company headquartered in Twinsburg, Ohio.
The statements made in this release include 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 locating and drilling oil and gas wells
in the Appalachian Basin area, the ability of the Company to integrate its
existing field operations with those of its recently acquired operations, the
ability to utilize the new service and production equipment purchased, the
amount of funds raised in Drilling Programs, and the ability to locate
productive oil and gas prospects for development by the Company.
