Chesapeake Energy 1993 Annual Report Download - page 31

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In April 1993 the Company entered into a $15000000 oil and gas reserve-based reducing revolving
credit facility with Union Bank. This loan is secured by the Company's interest in various producing oil and
gas properties and requires the Company to make monthly payments of $275,000 plus interest: Interest is
calculated at the lender s base rate plus 1 1/2% per annum (7 5% at June 30 1993) Terms of the credit
facility include quarterly borrowing base reviews commitment fees maturity at September 1 1994
covenants limiting the Companys ability to incur debt and restricting dividends without the banks
permission, and other provisions consistent with normal energy lending practices. The outstanding principal
balance of the creditfacility at June 30, 1993 was $10.2 million.
Effective December 31, 1992 the COmpany entered into a loan agreement with Belco Oil & Gas Corp.
( Belco ) pursuant to which Belco loaned $2 5 million to the Company The terms of the agreement include
restrictions on future indebtedness, limitations on the Company's right to pay dividends or redeem capital,
stock, and restrictions on the amount of general and administrative expenses that the Company may incur. As
part of this transactior), Belco received warrants. to purchase up to 180,000 shares of Common Stock at an
exercise price equal to $9.60 per share (see note 9). At June 30, 1993, the unpaid principal balance of the
loan was $2.4 million.
.On September 24, 1993 the Company and Belco entered into the First Amendment to Loan Agreement
( First Amendment ) which modified the mandatory payment terms of the original loan agreement added
mandatory prepayment terms on the loan in the event the Company makes any sale of equity securities or
debt convertible into equity securities ind amended certain of its covenants including the ceiling on general
and administrative expenses the Company may incur. The amendment to the mandatory prepayment
provisions is effective as of January 1 1994 All of the remaining provisions in the First Amendment are
effective June 30, 1993. .:
At June 30, 1993 the Company was in default under a promissory note with a vendor dated July 13, 1992
with a June 30, 1993 balance of $2.08 million. In April 1993, the vendor commenced legal action to collect.
the balance of the note. The Company and vendor have reached a preliminary agreement to modify the.
promissory note to restructure the terms as follows: (a) increase monthly payments from $25,000 to
$100,000 plus interest, (b) change the date on which the interest rate will increase to 18% from November
1992 to January 1994, (c) change the date of maturity to October 1, 1994, and (d) provide for past due
principal and interest through September 1, 1993 plus $100,000 to be paid by the Company at closing. The
accompanying consolidated balance sheets reflect the modification of terms of this promissory note as of June
3.0, 1993;
The Company has agreements with certain of its vendors under which the vendors have agreed to extend
long-term credit for supplies, materials and services provided by such vendors to the Company in connection
with current and future drilling projects. At June 30, 1993 approximately $1.6 million of credit was
outstanding under these agreements.
14. CONTINGENCIES AND COMMITMENTS
The Company is currently involved in certain litigation and has recorded a provision at June 30, 1993
for legal expenses and litigation settlements aggregating $1,286,000. While it is not possible to determine the
ultimate disposition of these matters, management, after consultation with legal counsel, is of the opinion that
the final resolution of all currently pending or threatened litigation is not likely to have a material adverse
effect on the consolidated financial position or results of operations of the Company when considering the
aforementioned provision.
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