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Rocky Mountain Gas Note
In June 2001, CCBM issued a non-recourse promissory
note payable in the amount of $7.5 million to RMG as consideration
for certain interests in oil and natural gas leases held by RMG
in Wyoming and Montana. The RMG note was payable in 41-monthly principal
payments of $0.1 million plus interest at 8% per annum commencing
July 31, 2001 with the balance due December 31, 2004. The RMG note
was secured solely by CCBM's interests in the oil and natural gas
leases in Wyoming and Montana. At December 31, 2003 and 2004, the
outstanding principal balance of this note was $0.9 million and
$0, respectively. In connection with our investment in Pinnacle,
we received a reduction in the principal amount of the RMG note
of approximately $1.5 million and relinquished the right to certain
revenues related to the properties contributed to Pinnacle. In the
second quarter of 2004, we opted to exercise our right to cancel
one-half of the remaining note payable to RMG, or approximately
$300,000, in exchange for assigning one-half of our mineral interest
in the Oyster Ridge leases to RMG.
Capital Leases
In December 2001, we entered into a capital
lease agreement secured by certain production equipment in the amount
of $0.2 million. The lease is payable in one payment of $11,323
and 35 monthly payments of $7,549 including interest at 8.6% per
annum. In October 2002, we entered into a capital lease agreement
secured by certain production equipment in the amount of $0.1 million.
The lease is payable in 36 monthly payments of $3,462 including
interest at 6.4% per annum. In May 2003, we entered into a capital
lease agreement secured by certain production equipment in the amount
of $0.1 million. The lease is payable in 36 monthly payments of
$3,030 including interest at 5.5% per annum. In August 2003, we
entered into a capital lease agreement secured by certain production
equipment in the amount of $0.1 million. The lease is payable in
36 monthly payments of $2,179 including interest at 6.0% per annum.
We have the option to acquire the equipment at the conclusion of
the lease for $1 under all of these leases. Depreciation on the
capital leases for the years ended December 31, 2003 and 2004 amounted
to $48,000 and $46,000, respectively, and accumulated depreciation
on the leased equipment at December 31, 2003 and 2004 amounted to
$78,000 and $0.1 million, respectively.
Senior Subordinated Notes and Related Securities
In December 1999, we consummated the sale of
$22.0 million principal amount of 9% Senior Subordinated Notes due
2007 (the "Subordinated Notes") and $8.0 million of common stock
and warrants. We sold $17.6 million, $2.2 million, $0.8 million,
$0.8 million and $0.8 million principal amount of Subordinated Notes;
2,909,092, 363,636, 121,212, 121,212 and 121,212 shares of our common
stock and 2,208,152, 276,019, 92,006, 92,006 and 92,006 warrants
to CB Capital Investors, L.P. (now known as JPMorgan Partners (23A
SBIC), L.P.), Mellon Ventures, L.P., Paul B. Loyd, Jr., Steven A.
Webster and Douglas A.P. Hamilton, respectively. The Subordinated
Notes were sold at a discount of $0.7 million, which is being amortized
over the life of the notes. Interest payments are due quarterly
commencing on March 31, 2000. As amended and described below, the
Subordinated Notes allow us, by annual election and we have historically
elected, to increase the amount of the Subordinated Notes by 60%
of the interest which would otherwise be payable in cash through
December 15, 2006. As a result, our cash obligation on the Subordinated
Notes will increase significantly after December 2006. As of December
31, 2003 and 2004, the outstanding balance of the Subordinated Notes
had been increased by $5.3 million and $6.8 million, respectively,
for such interest paid in kind. Concurrently with the sale of the
Subordinated Notes, we sold to the original purchasers 3,636,634
shares of our common stock at a price of $2.20 per share and warrants
expiring in December 2007 to purchase up to 2,760,189 shares of
our common stock at an exercise price of $2.20 per share. For accounting
purposes, the warrants were valued at $0.25 each.
In 2004, Mellon Ventures, L.P., JPMorgan Partners
(23A SBIC), Steven A. Webster and Douglas A. P. Hamilton exercised
warrants to purchase 276,019, 2,208,152, 92,006 and 92,006 shares
of common stock, respectively, on a cashless exercise basis for
a total of 205,692, 1,684,949, 70,205 and 70,205 shares of common
stock, respectively, and Paul B. Loyd, Jr., exercised warrants to
purchase 92,006 shares for a total of 92,006 shares of common stock.
As a result, no warrants to purchase shares remain outstanding from
the warrants originally issued in December 1999.
On June 7, 2004, an unaffiliated third party
(the "Subordinated Notes Purchaser") purchased all the outstanding
Subordinated Notes from the original note holders. In exchange for
a $0.4 million amendment fee, certain terms and conditions of the
Subordinated Notes were amended, to provide for, among other things,
(1) a one year extension of the maturity to December 15, 2008, (2)
a one year extension, through December 15, 2005, of the paid-in-kind
("PIK") interest option to pay-in-kind 60% of the interest due each
period by increasing the principal balance by a like amount (the
"PIK option"), (3) an additional one year option to extend the PIK
option through December 15, 2006 at an annual interest rate on the
deferred amount of 10% and the payment of a one-time fee equal to
0.5% of the principal then outstanding, (4) an increase and extension
on the prepayment premium on the Subordinated Notes, (5) a modification
of a covenant regarding maximum quarterly leverage that our Total
Debt will not exceed 3.5 times EBITDA (as such
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