| | amounts due
under the Second Lien Credit Facility until the earlier of 45 days after the occurrence
of the event resulting in the default and acceleration of the loans under the
First Lien Credit Facility. Rocky Mountain Gas, Inc.
Note On June 29, 2001, CCBM, Inc. 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. All of these amounts have been paid. The RMG note was secured solely
by CCBM’s interests in the oil and natural gas leases in Wyoming and Montana.
In connection with its investment in Pinnacle Gas Resources, Inc., the Company
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. During the second quarter of 2004, CCBM relinquished
a portion of its interests in certain oil and natural gas leases to RMG and reduced
the principal due on the RMG note by $0.3 million. Capital
Leases In December 2001, the Company entered into
a capital lease agreement secured by certain production equipment in the amount
of $0.2 million. The lease was payable in one payment of $11,323 and 35 monthly
payments of $7,549 including interest at 8.6% per annum. In October 2002, the
Company 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, the Company 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, the Company 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. The Company has 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, 2004 and 2005 amounted
to $48,000, $46,000 and $42,000 respectively, and accumulated depreciation on
the leased equipment at December 31, 2004 and 2005 amounted to $124,000 and $166,000,
respectively. Senior Subordinated Notes and Related Securities
In December 1999, the Company 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. The Company
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 the Company’s 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 was amortized over the life of the notes. Interest
payments were due quarterly commencing on March 31, 2000. As amended as described
below, the Subordinated Notes allowed the Company, until December 2005, to increase
the amount of the Subordinated Notes for 60% of the interest which would otherwise
be payable in cash. As of December 31, 2004 and the July 21, 2005 repayment date,
the outstanding balance of the Subordinated Notes had been increased by $6.8 million
and $7.6 million, respectively, for such interest paid in kind. During 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 for cash to purchase 92,006 shares for
a total of 92,006 shares of common stock. As a result, no warrants to purchase
shares of common stock 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 amendment fee equal to 0.5% of the principal then outstanding and
(4) additional flexibility to obtain a separate project financing facility in
the future. The amendment fee was amortized over the remaining life of the Subordinated
Notes using the effective interest method. The Company
was subject to certain covenants under the terms of the Subordinated Notes securities
purchase agreement, including but not limited to, (a) maintenance of a specified
tangible net worth, (b) maintenance of a ratio of EBITDA (earnings | |
