U.S SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB/A
Registration Statment Of Small Business Issuer Pursuant to
Section 12(g) of the Securities Exchange Act of 1934
CAMBRIDGE ENERGY CORPORATION
(Name of Small Business Issuer in its charter)
Nevada 59-3380009
- ------------------------------- -------------------
(State or Other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
215 South Riverside Drive
Suite 12
Cocoa, Florida 32922
- --------------- -----
(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number: (407) 636-6165
Securities to be registered pursuant to Section 12(b) of the Act:
NONE
-----
Securities to be registered pursuant to Section 12(g) of the Act:
COMMON STOCK: $ .0001 PAR VALUE
-------------------------------
(Title of Class)
<PAGE>
Part I
ITEM 1. DESCRIPTION OF BUSINESS
(a) Business Development
CAMBRIDGE ENERGY CORPORATION, (the Company) was incorporated under the laws
of the State of Nevada on April 9, 1996. At inception the Company's Articles of
Incorporation Authorized 2,000,000 Common Shares at $.001 Par Value, and 100,000
Preferred Shares at $.001 Par Value. In June 1997, the Board of Directors
approved an amendment to the Company's Articles of Incorporation increasing the
authorized Common Shares of the Company from 2,000,000 to 50,000,000, and
increasing the number of authorized Preferred Shares from 100,000 to 25,000,000.
At that time the Board also changed the Par Value of each class of stock to from
$.001 to $.0001 per share. The amended Articles were filed with the State of
Nevada on July 7, 1997. The Company then undertook a Private Placement of
1,935,000 of its Common Shares to raise capital for the execution of its
business plan. In November 1997, the Company began trading its Common Shares on
the OTC Bulletin Board under symbol CNGG.
(b) Business of Issuer
The Company.
Cambridge Energy Corporation was formed for the purpose of development and
operation of oil and gas properties with proven reserves. The Company's strategy
is to focus in domestic areas where major oil and gas producing companies have
reduced their exploration efforts to move offshore and overseas in search of the
larger reserves. Considerable oil and gas in proven fields remain to be
exploited by well-managed independent oil companies capable of extracting these
reserves at lower risk and lower cost than unproved prospects. Cambridge
Energy's initial development strategy has been to acquire such proven fields and
increase production through the application of advanced technology and the
exploration of other proven formations in the same fields.
Cambridge Energy's primary operational strategy includes the operation of
its own projects, giving it substantial control over drilling and production
costs. The Company has associated highly experienced exploration and development
engineering and geology personnel that strive to add production at lower costs
through development drilling, workovers, behind pipe recompletions and secondary
recovery operations.
The Industry:
According to United States Energy Information Administration, petroleum is
the major source of energy in the United States - oil and natural gas. Together
they supply 65% of the energy Americans use. The U.S. has 22 billion barrels of
oil reserves, eleventh largest in the world. These reserves are concentrated
primarily in Texas (26%), Alaska (26%), California (16%), and the Gulf of Mexico
Federal Offshore region (9%). U.S. proven oil reserves have declined by more
than 4 billion barrels since 1988, with the largest single-year decline (1.6
billion barrels) occurring in 1991. America produced 9.44 million barrels per
day (BOPD) of oil in 1997, of which 6.41 million BOPD was crude oil. Total U.S.
domestic crude oil production is expected to decline by about 0.6% in 1998. U.S.
crude oil output of 6.3 million BOPD in August 1997 represented the lowest
output since 1954. There are signs that this decline may have leveled off, and
that a slow increase may be in store due largely to improved technology and new
or increased offshore production in the Gulf of Mexico. All told, oil production
in the lower 48 states is expected to increase slightly (1.1%) in 1998.
1
<PAGE>
Overall, net income of 19 major petroleum companies fell 5% between the
fourth quarter of 1996 (Q496) and the fourth quarter of 1997 (Q497), to $7.5
billion. The decline in earnings was due to the poor performance of the majors'
domestic and foreign oil and gas production operations. Both lower crude oil
prices and lower domestic natural gas wellhead prices hindered upstream
operations. While low crude oil prices favored downstream operations, they were
not enough to offset the decline in upstream income. Meanwhile, income for
independent oil and gas producers increased 38% from 4Q96 to 4Q97 (to $2
billion) due to the record-breaking performance of the companies'
refining/marketing activities, and the performance of oil field exploration
activities. Income for independent refiners increased more than five-fold during
the same period due mainly to wider margins (the difference between average
resale product prices and crude oil input costs) and lower operating expenses.
As of January 1, 1998, the United States had estimated natural gas reserves
of 166.5 trillion cubic feet (Tcf), or 3.3% of world reserves. In 1998, the
United States is expected to produce 19.2 Tcf of gas, second in the world
(behind Russia). Also during 1998, the United States is forecast to consume 22.1
Tcf and to import 3.1 Tcf of gas (largely from Canada). For 1999, U.S. natural
gas demand is expected to jump another 1.1 Tcf, or 5.2%, from 1998, while
imports are expected to rise 7.8%. Overall, the United States depends on natural
gas for about one-quarter of its total energy requirements.
Natural gas is considered a desirable fuel -- both for environmental and
national security reasons -- by top U.S. government officials. In May 1997, U.S.
Energy Secretary Pena called for expanded use of natural gas as part of a
strategy to reduce U.S. dependence on imported foreign oil. In October 1997,
President Clinton said that the United States must pursue a policy of "fuel
conversion" from coal to natural gas for electric power generation. Meanwhile,
thanks to improvements in exploration and development technology, new natural
gas reserves continue to be added in the United States.
In the long-run (through 2020), U.S. natural gas production is expected to
increase sharply as a result of rising prices, abundant reserves, and improved
unconventional and offshore recovery technology. Increased gas production is
expected to come mainly from onshore nonassociated sources, although offshore
Gulf of Mexico production also is forecast to grow significantly. Alaska's North
Slope fields are also a large potential gas source, with an estimated 30-35 Tcf
of gas reserves. U.S. natural gas consumption also is expected to expand
substantially through 2020, with the fastest growth resulting from additional
gas-fired electric power plants. In particular, new combined-cycle facilities
furnished with more efficient gas turbines will help lower the cost of
gas-generated electricity to levels competitive with coal-fired plants.
Forward-Looking Information:
All statements other than statements of historical fact contained herein
are forward-looking statements. Forward looking statements are generally
accompanied by words such as "anticipate," "believe," "estimate," "project,"
"potential" or "expect" or similar statements. Although the Company believes
that the expectations reflected in such forward-looking statements are
reasonable, no assurance can be given that such expectations will prove correct.
Factors could cause the Company's results to differ materially from the results
discussed in such forward-looking statements. Such factors include such things
as uncertainty of costs associated with exploratory drilling, drilling results
and reserve estimates, operating hazards, need for additional capital,
competition from other exploration, development and production companies, the
fluctuations of prices received or demand for the Company's oil and gas, and the
effects of governmental and environmental regulation. All forward-looking
statements contained herein are expressly qualified in their entirety by the
cautionary statements in this paragraph.
2
<PAGE>
Environmental and Government Compliance and Costs:
All oil and gas operations are subject to extensive environmental
permitting and governmental regulation. All drilling and rework operations are
subject to inspection by local, state and federal regulators. Violation of these
requirements, or environmentally damaging spills or accidents due to
non-compliance in these areas can result in fines and, depending on the severity
of the negligence, criminal prosecution. The Company is not currently a party to
any judicial or administrative proceedings which involve environmental
regulations or requirements and management believes that it is in substantial
compliance with all applicable environmental regulations.
In many cases there is a bond required of operators to ensure that a
prospective well is properly plugged and abandoned when its useful life is
determined to be concluded. The Company has posted such a bond in the amount of
$25,000 on one of its West Lake Arthur projects. Such bonds are additions to the
cost of Cambridge Energy's projects.
Oil and Gas Operations: (see also Management Discussion and Analysis)
The Company realized from the sale of its production for the fiscal year
ended March 31, 1998, $17.20 per barrel of oil and $2.06 per mcf of gas. The
Company's average lifting cost was $.83 per BOE for the same period on the sale
of 19241 BOE. This production was up from 1079 BOE the year prior based upon the
Company's Calvert & Todd No. 1 well coming on line during the last two months of
the period. As of the end of this period, the Company has on line one gross gas
well and one gross oil well (Cambridge's working interest in the gas well is 25%
before payout with a total of 34.375% after payout) on a total of 210 acres. In
addition, the Company has 844 acres of undeveloped properties. For the year
ended March 31, 1998, the Company drilled and completed one gas well (referenced
above) and drilled, plugged and abandoned one oil well (two gross wells and one
and a quarter net wells.) During the period, the Company substantially completed
the engineering and planning work on a 20 well drilling project to begin in the
third quarter of the current fiscal year.
Well Services Business:
In March 1998, the Company entered into an agreement to purchase Triton
Wellhead & Manufacturing, Inc., a manufacturer of wellhead and valve devices
serving primarily the oil and gas industry . The acquisition includes a 14,000
square foot manufacturing facility in Broussard, Louisiana, along with machine
equipment, raw stock and finished product inventory, and engineering drawings
for its products catalog. It is anticipated that when closed this transaction
will add approximately $925,000 in assets to the Company, and $388,000 in long
term debt. Cambridge Energy has acquired an industry sales representative to
enhance the wholesale and retail marketing of these products domestically and
overseas. An added benefit of this acquisition is the vertical integration
aspect, whereby the Company can obtain these products for use on its own
properties from Triton, ensuring availability and lower cost. The Company
anticipates closing this transaction in 2d Quarter of its fiscal year ending
March 31, 1999. Cambridge currently manages this facility under a management
agreement pending closing.
Employees, Consultants and Contractors:
The Company currently has four full-time employees mainly involved in the
management, administration and investor relations aspects of the Company's
business. Most of the engineering and geology for the Company's projects is
performed by consulting firms, and the actual drilling, rework and other field
operations performed on a project basis by contractors who bid for the work, the
most cost-effective manner of operation, as the range of expertise and services
required varies by project and time duration.
3
<PAGE>
Cambridge Energy employs G & A International, Inc., a petroleum engineering
firm in Lafayette, Louisiana, to perform all of the Company's engineering
analysis and project design, drilling and rework supervision. In addition, G & A
provides office space and support for the Company's office in Lafayette. Much of
the engineering and geological analyses are reimbursed on a project basis pro
rata by the working interest partners participating in each project. The Company
also employs an oil and gas accounting firm, Investors Petroleum Consultants,
Inc. in Lafayette, Louisiana, to provide accounting and disbursement reports on
all of the lease and other royalty and working interest percentages of each of
the companys projects as well as to prepare oil and gas production revenue
disbursements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The Company completed drilling on the Calvert & Todd No. 1 in Houma,
Louisiana and tested the well on November 7, 1997. Cambridge owns a 25% working
interest before payout and a 34.375% interest after payout. Due to delays in
pipeline connection, it was February 26, 1998 before the well began flowing into
the Eagle Natural Gas system, the purchaser of the gas. At the end of the fiscal
year ended March 31, 1998 (FY 98) this well was flowing at in excess of 3
million cubic feet of gas per day and 60 barrels of oil condensate per day
Through the end of the fiscal year (FY 98) Cambridge produced a total of
84.460 million cubic feet of gas and 1,927 barrels of oil condensate from this
well. The well has continued to average more than 3 million cubic feet per day
of gas and 60 barrels of oil condensate. Through June 4, 1998, the Company has
produced from this well, 268.110 million cubic feet of gas and 5,853 barrels of
oil. Total Revenues from gas sales received from this well in May for the one
month period ended March 31, 1998 were $198,287.55 and in June for the one month
period ended April 30, 1998 were $221,691.54. Oil revenues for this two month
period from this well were $40,787.16. All of these revenues except for
$5,154.40 due other working interests and 21% landowner royalties came to
Cambridge in payment of monies due.
The Company's revenues from its operations increased to $126,413 for the
year ended March 31, 1998 based primarily on revenues commencing during the last
month of the fiscal year for production from the Calvert & Todd No. 1 well,
although it did include $20,210.56 from its Floyd A-1 well in its Big Island
Field. Operating expenses increased from $26,801 to $1,150,298 which included
$840,450 in Exploration costs related to the Calvert & Todd No. 1 well. (see
"Current Oil and Gas Properties")
During the Company's first fiscal year (partial) ended March 31, 1997, it
acquired leases each containing one producing well and one salt water disposal
well on two producing oil and gas properties in Louisiana. These properties also
contained additional proven reserves the Company intends to develop. The Company
is the operator on both properties, maintaining a 100% working interest net of
royalties in the Floyd #A-1 well in the Big Island Field of Rapides Parish,
Louisiana, and a 5% working interest net of royalties in the Odra Stelly #1-D
well in the Abbeville Field of Vermilion Parish, Louisiana. The Company
subsequently negotiated a 100% working interest in the Odra Stelly #1-D well. In
addition, the principals conveyed to the Company a 1/128th interest in an oil
producing property, the Brinley #2-6 in Garvin County, Oklahoma. Revenues from
these producing properties were $17,272 during the Company's partial fiscal year
ending March 31, 1997. Funds over and above these revenues required for lease
renewals, working interest contributions, and other Company operations during
this partial FY 1997 were provided by loans from shareholders.
During the fiscal year ended March 31, 1998, Company acquired additional
leases via an assigned farmout from Union Oil of California (UNOCAL) in the
Houma Field of Terrebonne Parish, Louisiana; leases in the Arnaudville Field of
St. Martin and St. Landry Parishes, Louisiana; leases in the West Lake Arthur
Field of Jefferson Davis Parish, Louisiana; and leases in the Bayou Blue Field
of Iberville Parish, Louisiana, for total lease acquisition expenditures of
$113,654 for the fiscal year. This was up from $243 the year prior. (see
"Current Oil and Gas Properties")
4
<PAGE>
Revenues from the Floyd #A-1 well in the Big Island Field of Rapides
Parish, Louisiana, totaled $20,210.56 during the fiscal year ending March 31,
1998. The revenue was reduced significantly as the Company performed rework and
maintenance on the well during this period, resulting in the well being down for
a considerable period of time, however, the Company's rework operations were
successful and the well is back on line. The Company plans to drill two
additional wells on its properties at Big Island. The leases the Company holds
at Big Island include a saltwater disposal well that currently services the
Floyd #A-1 well, and is capable of handling this function for the two new wells
to be drilled on these properties.
The Company also undertook a "sidetrack" drilling operation at its Odra
Stelly #1-D well in the Abbeville Field of Vermilion Parish during December
1997. The producing sands that were the target of the sidetrack were found to be
lower than expected, the well was determined to be not commercially viable and
was plugged and abandoned. Revenues to the Company from the Odra Stelly #1-D
well were negligible in FY 1998. Management believes there are deeper gas
reserves to be accessed by this well, but has made no decision about the
Company's future plans with respect to this property.
Liquidity :
In June 1997, the Company undertook a Private Placement of its Common
Shares to raise capital for the execution of its business plan. This offering
ultimately resulted in the Company raising $772,625 during fiscal year ended
March 31, 1998. During the first quarter of the subsequent year, the Company
raised an additional $230,000 for the sale of common stock.
Management believes that its 25% (34.375% after payout) working interest
revenues from the Calvert & Todd #1 well will meet its minimum general and
administrative cost requirements and provide the basic liquidity the Company
needs to operate at current levels over the next twelve months. However,
additional funding will be required to execute its business plan of acquiring
additional leases and reserves, and performing drilling and rework activities
planned for its existing properties (See "Current Oil and Gas Properties"). Part
of this funding is expected to be obtained by the sale of working interest
percentages in the drilling and rework projects, with the Company maintaining a
"back-end" promotion in each project in addition to the working interest
percentage it retains up front. The "back-end" is the additional percentage the
Company realizes, after the working interest partners receive return of their
original investment, for acting as the principal and organizer of the project,
including accomplishing the lease due diligence and acquisitions; negotiating
and executing working interest placements; and as overall implementor of the
project. The balance of the funding required to execute the Company's planning
will need to be obtained from other sources such as debt or the sale of
additional equity. The Company has proposed the sale of $4,000,000 in preferred
stock for this purpose but had not entered into any agreement for such financing
and there is no assurance that such financing will be forthcoming.
Material Commitments for Capital Expenditures:
The Company has made no material commitments for these future projects
other than to acquire and pay for the respective leases. Each drilling and/or
rework project is stand-alone and although the Company is in constant discussion
with prospective working interest partners on each potential project,
commitments for the actual drilling or rework and site preparation operations
are not made for each project until the Company has received the funds from its
working interest partners and the funds for its portion of the working interest
are in place. The leases the Company holds are renewable annually unless "held
by production". If the leased property has a producing well that is providing
royalty payments to the leaseholders, then annual lease payments and renewals
are not required. This is the case with certain of the Big Island leases as well
as Houma assigned farmout properties. Cambridge Energy strives to accomplish the
drilling or rework planned for each property within the year first leased. When
that does not occur however, management reviews the potential of each property
as its leases come up for renewal and makes a decision whether or not to renew
each lease in light of the Company's business planning at that time.
5
<PAGE>
ITEM 3. DESCRIPTION OF PROPERTY
The corporate offices of Cambridge Energy Corporation are in Cocoa,
Florida, and consist of approximately 1200 square feet of office space owned by
an officer and director of the Company. The Company has utilized this space
since its inception at no cost. As revenues increase the Company intends to
either purchase or lease larger facilities for its headquarters at another
location.
The Company also maintains engineering offices in Lafayette, Louisiana, as
part of its consulting contract with G & A International, Inc. for engineering
services. The Company is obligated for a fee of $14,000 per month for the
engineering services and office space and support, a portion of which it is
reimbursed as engineering costs for each project are attributed to the working
interest partners.
Current Oil and Gas Properties:
Houma Field - Calvert & Todd No. 1 Well: A 12,500' gas well that Cambridge
Energy drilled, completed and brought on line in Terrebonne Parish at Houma,
Louisiana. The Company drilled this well at the end of 1997 on an assigned
farmout from UNOCAL. The well is currently producing approximately 3 million
cubic feet per day. In addition, the Calvert & Todd No. 1 well also produces 16
- - 25 barrels of oil/condensate per million cubic feet of gas, or currently about
60 - 75 barrels of oil/condensate per day (BOPD). The natural gas is being sold
by contract to Eagle Natural Gas Company, and the oil/condensate is being sold
to UNOCAL in accordance with their assigned farmout agreement with Cambridge
Energy. The Company owns a 25% working interest in the well, net of 28%
royalties. The Company's working interest will increase to 34.375% after payout,
when the other working interest partners get return of their original
investment, and remain at that interest for the life of the well. Cambridge
Energy is the operator of the well.
Houma Field Continued Development: The Houma Field project initially
consisted of two wells, one development well to be drilled to gas and
oil/condensate that remain in reservoirs that produced in wells down dip from
the Calvert & Todd No. 1 development well location or reservoirs that were
productive by log analysis but never produced, and one well to be drilled to
test the upthrown untested fault block on the acreage. The initial well, the
Calvert & Todd No.1, described above, was a 12,500' normal pressured Krumbhaar
Sand test drilled on the crest of a downthrown fault closure to produce bypassed
pay in the First Krumbhaar Sand as well as recoverable reserves from as many as
five partially depleted Krumbhaar gas sand reservoirs. There were also several
Tex. W. and Big (3) Sands that were logged as pay in the new well. The second
location is a proposal to test an upthrown fault closure on north dip for
Krumbhaar Sands that lie between two proven productive fault blocks, updip to
good sidewall core shows.
The Formation Test of 4,000 PSI taken in the Krumbhaar 4 Sand during the
drilling of Calvert & Todd No.1 indicates that a partial water drive has allowed
this reservoir to re-pressure since the last production and a P/Z curve allows
the determination of the remaining reserves in this sand. There was no pressure
data taken in the Krumbhaar 3 Sand that logged 10' - 14' of net gas pay, nor in
the Krumbhaar 1A Sand that logged 8' of net gas pay. The new well logged 28 feet
of net gas pay with no known water level in the Big (3) No. 3 Sand at 11,536'.
The 8950' Sand was shaled out. The Big (3) No.1 Sand that produced 15.3 billion
cubic feet (BCF) in the Calvert & Todd No. 14-1 logged as productive and
depleted with a possible low BHP. The Prentice and 1st Gaidry Sands as well as
the 9600 Foot Sand in the Tex W. interval also logged as productive. There also
appears to be production in other intervals that may add to reserves to the
above mentioned reservoirs for a second well to be drilled through the Big (3)
section at the optimum structural position on this feature. Completions in
similar pays in the Big (3) and Tex W. intervals have had excellent recoveries
in other wells in the Houma Field. The modern suite of logs that were run in the
Calvert & Todd No. 1 well for porosity and shaley sand resolution (FDC-CNL, GR,
CAL) defined additional pay zones that have not been produced. A well drilled at
the apex of this structure will penetrate several potential productive
reservoirs that appear anomalous on electric logs of existing wells in the areas
that were drilled in the 1950s and 1960s. Cambridge Energy plans at least one
additional wells for its farmout properties at Houma to access proven reserves
identified and logged during the drilling of the Calvert & Todd No. 1 well.
6
<PAGE>
Big Island Field: This is a 140 acre property Cambridge Energy has under
lease in Rapides Parish, Louisiana, which includes an existing oil well known as
the Floyd A-1 well. Geologically, the Floyd A-1 well is situated at the net
oil's edge of a Hudson Sand channel and produces water along with the oil from
this Wilcox Sand. As part of the continued development of the Big Island Field,
this well will be enhanced by equipping it with a larger pump. Current
production of Floyd A-1 well is 8-12 BOPD after some rework was accomplished in
December 1997, which is sold to Scurlock Permian Corporation a subsidiary of
Ashland, Inc. of Houston, Texas. Production is expected to increase to 15-17
BOPD with the larger equipment. The Wilcox formation throughout this region
produces water along with the oil shortly after being placed on production. The
amount of water increases in the later life of the wells. The Floyd A-1 well
should produce for another 10-20 years. The Company purchased a salt water
disposal well as part of the Big Island acreage that services the Floyd A-1 well
and will service the two additional wells that the Company is preparing to drill
on these properties.
Big Island Field Continued Development. The Big Island and North Big Island
Oil Fields of North Central Louisiana are located in Rapides and LaSalle
Parishes, Louisiana. Production from these two fields is generated from the
Wilcox formation of Eocene Age, and to a lesser degree from the lower Tuscaloosa
formation. The Wilcox formation will be the primary target of the development
drilling program currently planned by the Company. Production in this area was
established in 1950 by Union Production Company, (now known as Pennzoil) who
along with Crow Drilling & Production Company, were instrumental in developing
these two large fields. There are 11 productive sands in each of these two
fields that have produced nearly 30 million barrels of oil to date. The post
production history, as well as the exploration techniques employed in drilling
these fields by Union Production Company, and the recent infield drilling by
other independent companies, suggest only a fraction of the oil has been
discovered in or recovered from these two fields. The concept of horizontally
infield drilling can be employed in this program as well as the targeting of
untapped reservoirs in this region of established production. These efforts will
concentrate on horizontally drilling an up dip direction to wells that have
watered out and drilling a channel-sand type reservoir between wells that have
ceased to produce because of premature water encroachment.
The first well will be a 5,800' straight hole test drilled to the Hudson
Sand reservoir, where the electric log and side wall cores will determine the
net feet of oil pay in the drainage area of one or two horizontal wells. This
evaluation well is also drilled to complete in the 5,200 Foot Sand that also
produced in offset, down dip of this field. An additional well may be necessary
during the producing life of the first straight hole to economically drain the
entire remaining reserves in this sand. The initial straight hole well will
evaluate the net oil thickness and other data for the first horizontal well
project, and the requirement for a second horizontal well later in the
productive life of the first horizontal well drilled.
West Lake Arthur Field: This is a 352 acre oil producing property that
Cambridge Energy has under lease in Jefferson Davis Parish, Louisiana . It
includes an existing well bore that the Company intends to recomplete in new pay
zones shown on the logs, as well as one new "sidetrack" well the Company intends
to drill. The first project will be the Edgewater (TGT) Morgan Plantation No.1
well as a re-entry and re-completion project of a previously produced well. The
well was originally drilled by Tennessee Gas Transmission in 1957. It is still
completed in the original perforated interval and no additional work was done to
alter this completion since that date. The Company has purchased this well bore
and equipment from the land owners and owns the rights to the reservoirs to
13,500' by virtue of the lease agreement. A re-completion in this well bore will
be only one of the revenue streams possible from the reservoirs under the lease
block owned by the Company in this field. These evaluations will be made after
this first well has been put on production. The Edgewater well bore has four
zones that are productive by either down dip production history, core analysis
and/or log analysis. The re-entry and workover will provide a five year
moratorium of severance taxes that amounts to 12.5% of gross sales.
7
<PAGE>
The second well is planned to be directionally drilled from the plugged and
abandoned Miller, Morgan Plantation No. 1 well. The well is planned to be a
replacement well to the Tenneco, Morgan Plantation well that experienced
collapsed casing after producing 428,683 barrels of oil from the 2nd Marg howei
Sand. This directionally drilled well is planned so as to have 1,050' of
horizontal displacement at the top of the 1st Marg howei Sand as seen at 12,775'
in the Tenneco, Morgan Plantation No.1 well. The new well should be slightly
high to the 2nd Marg howei completion in the Tenneco well. Tenneco had proposed
a recompletion in the 1st Marg howei Sand but the collapsed casing prevented
this operation. The fault block of interest has excellent productive sands from
the log analysis and production histories of down dip wells. The Company expects
to confirm four to five productive zones with this well. The re-entry and
sidetrack procedure, as compared to drilling a new vertical hole, is
approximately half the price and will provide a five year moratorium of
severence taxes also which will pay for the cost of drilling and completing the
well. An additional development well will have to be considered if the sidetrack
hole confirms the presence of reserves as calculated from the study of the older
well logs in this fault block.
Cambridge Bayou Blue Field: This is an 80 acre oil producing property that
the Company has under lease in Iberville Parish Louisiana. This property has
three wells that are candidates for re-entry so as to workover and recomplete in
zones that were not produced to their economic limits and were prematurely
plugged during low oil prices in the 1960s. In addition to 7 productive sands
that have produced oil and gas in the past, there are also other possible
productive zones that have never been produced. One of the wells on the lease
can be converted into a salt water disposal well.
The Cambridge Energy lease is located on the southwest flank of the salt
dome. The structural oil and gas trapping mechanism is truncation of the
sediments against the impermeable salt plug in the deeper sediments and the
shallow sediments are draped across the top of the salt plug. Salt domes have
historically been the most prolific oil fields in South Louisiana. The Bayou
Blue Field is not an exception. The Cambridge lease has previously produced over
1.2 million barrels of oil.
Cambridge Energy's approach to re-developing this field is to drill one
well up dip to the well known as the Grief Brothers No. 3 well and putting the
Grief Brothers No. 3 well and the Grief Brothers No. 4 well back on production
by re-entry into these existing well bores. The Grief Brothers No. 2 well could
then be re-completed at a later date, depending upon production results from the
other wells.
Cambridge Arnaudville Field. This is a 312 acre gas and oil/condensate
property Cambridge Energy has under lease in St. Martin Parish, Louisiana.
Initial project plans call for two development wells to be drilled to reserves
that remain in reservoirs that previously produced down dip from the prospective
development well location or shown productive by log analysis. The initial well
is a 10,400' normal pressured Tweedel Sand test updip from a well that produced
form the Nodosaria 3 Sand as well as from the Homeseekers "B" and 9,400 Foot
Sand. The main objective is the Nodosaria 3 Sand that produced in the down dip
Slick Oil Company, Singleton No. 1 well. Cores from the down dip well indicate
an oil level in this reservoir that will result in a low gas-oil ratio. The
production from this down dip well was probably curtailed as the bottom hole
location at this Nodosaria 3 Sand depth was drilled very near the fault.
The initial development well is to be drilled so as to be 1,650 feet east
of the Singleton No. 1 well. The up dip bottom hole location in the Nodosaria 3
Sand should provide 20 feet of net gas/oil condensate pay with a possible oil
level. There should be no water level as the well should be 22-25 feet high as
mapped. The Tweedel Sand should log 15-40 feet of pay with a possible oil and
water level. The second development well, Arnaudville Field-West Prospect is to
the west in a downthrown fault block. This is a well to be drilled updip to
reservoirs that produced in this separate fault block. These sands will also
produce gas condensate reserves.
8
<PAGE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners
NONE
(b) Security Ownership of Management
The following table sets forth the share holdings of the Company's directors and
executive officers as of March 31, 1998, with these computations based upon
8,334,786 shares of common stock being outstanding, and no options granted being
exercised.
- --------------------------------------------------------------------------------
(1) (2) (3) (4)
Title of Name and Address Amount and Nature Percent of
Class of Beneficial Owner of Beneficial Owner Class
- --------------------------------------------------------------------------------
Common Perry Douglas West Chairman and CEO 38.3
P.O. Box 1656 3,192,393 Shares*
Cocoa, Florida 32923
Common Lee M. Payne Former Executive Vice
1295 Rockledge Drive President/Director
Rockledge, Florida 32955 3,192,393 Shares* 38.3
Common Officers and Directors
as a Group 6,384,786 Shares 76.6
* Both Mr. West and Mr. Payne have options to purchase 1,000,000 shares of the
Company's Common Stock at $.50; 1,000,000 shares at $1.00; and 1,000,000 shares
at $1.50 any time within sixty months of June 9, 1997 when the options were
granted.
Management has no knowledge of the existence of any arrangements or
pledges of the Company's securities which may result in a change in control of
the Company.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
(a) Identification of Directors and Executive Officers.
(1) (1) (2) (3)
Name Age Term* Served
---- ----- ----- ------
Perry Douglas West Elected Since
Chairman and CEO 50 Annually Inception
*All directors hold office until the next annual meeting of the
stockholders and the election and qualification of their successors. Officers
are elected annually by the Board of Directors and serve at the discretion of
the Board.
The following is a brief description of the business background of the
directors and executive officers of the Company:
9
<PAGE>
Perry Douglas West co-founded the Company in April 1996, and has served as
Chairman of the Board, President and Chief Executive Officer since its
inception. He was Chairman and Chief Executive Officer of Interactive
Technologies Corporation (ITC) from 1995 until January 1998. ITC is a developer
and producer of television, interactive television and interactive digital media
programming. Mr. West co-founded American Financial Network in 1985.
Headquartered in Dallas, Texas, American Financial Network operated a national
computerized mortgage loan origination network. Mr. West served as Executive
Vice President/Director and General Counsel of this publicly traded company from
1985 to 1991. Mr. West has practiced law in Florida since 1974, representing
various business institutions in the financial, computer, natural resources and
general business industries and international transactions. He was graduated
with a Bachelor of Arts degree from The Florida State University in 1968 and
with a Juris Doctorate degree from The Florida State University College of Law
in 1974.
There are no other significant employees of the business, and there are no
family relationships among the directors, executive officers or persons
nominated or chosen by the Company to become directors or executive officers.
None of the Company's directors, executive officers or nominees for such office
have been involved in any legal proceedings related to bankruptcy of an entity
where they held such positions; nor charged or convicted in any criminal
proceedings; nor subject to any order, judgment, or decree permanently or
temporarily enjoining, barring, suspending or other wise limiting their
involvement in any type of business, securities or banking activities; nor found
in any manner whatsoever to have violated a federal or state securities or
commodities law.
ITEM 6. EXECUTIVE COMPENSATION
Cash Compensation:
The following table sets forth the aggregate cash compensation paid by the
Company for services rendered during the periods indicated to its directors and
executive officers:
SUMMARY COMPENSATION TABLE
Name & Position Fiscal Year Salary Bonus Other Compensation
- --------------- ----------- ------ ----- -----------------
Perry D. West
Chairman/CEO 1997(1) -0- -0- -0-
1998(2) $40,615 -0- $45,000
Lee M. Payne
Executive VP 1997(1) -0- -0- -0-
(Former)** 1998(2) $35,538 -0- -0-
(1) April 9, 1996 (Inception) - March 31, 1997
(2) April 1, 1997 - March 31, 1998
**Mr.Payne has resigned from the Company but no settlement has been made
concerning his Compensation Agreement.
Mr. West and Mr. Payne each have Executive Compensation Agreements in
effect with the Company, approved by the Board of Directors. These Agreements
are each for five year terms, and are incentive based over and above the basic
salary of $150,000 per annum for Mr. West, and $135,000 per annum for Mr. Payne.
Salary increases are based on gross revenue achievements. The first two full
fiscal years' gross revenue goals for salary increases are $4,000,000, and
$8,000,000 respectively. Third, Fourth and Fifth year gross revenue goals will
be set by the Board of Directors prior to the beginning of those years.
Additional benefits include medical and dental coverage for Mr. West and Mr.
10
<PAGE>
Payne and their families; disability coverage; vacation; automobile or allowance
for automobile; and a death benefit. Mr. West and Mr. Payne are also entitled to
participate in the Company's Key Employee Stock Option Plan which has been
authorized by the Board of Directors but not implemented as of the fiscal year
ended March 31, 1998. Mr. West and Mr. Payne will also be entitled to
participate in the Company's 401(K) retirement plan, which the Company intends
to offer to its employees during FY 1999. These employment contracts may be
terminated for cause, and they provide for payments to the executive in the
event there is a change of control of the Company which adversely affects their
employment. Mr. West and Mr. Payne have agreed to waive all or partial salary
and other benefits from their compensation agreements until the Company's
revenue supports these expenditures.
The following table sets forth the options granted during the last 12
months to each of the directors and executive officers:
Option/SAR Grants in Last Fiscal Year (Individual Grants):
Number of Percent of total
Securities Options/SARs
Underlying granted to Exercise or
Options/SARS employees in base price Expiration
Name Granted fiscal year ($/Share) date
----- ------------ ---------------- ---------- -----------
Perry D. West 1,000,000 16.7 $ .50 6/9/02
1,000,000 16.7 $1.00 6/9/02
1,000,000 16.7 $1.50 6/9/02
Lee M. Payne 1,000,000 16.7 $ .50 6/9/02
1,000,000 16.7 $1.00 6/9/02
1,000,000 16.7 $1.50 6/9/02
No options granted to the directors and executive officers were
exercised during the fiscal year ended March 30, 1998.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Shareholder Loans. During the fiscal year ending March 31, 1998, both executive
officers and directors of the Company, Mr. West and Mr. Payne, made shareholder
loans to the Company for operating expenses totaling $ 31,905.00. These amounts
were loaned at no interest, and will be reimbursed at such time as cash flow
permits.
Other Material Transactions. With the exception of the Executive Compensation
Agreements and the Executive Stock Option Agreements of Mr. West and Mr. Payne,
there have been no material transactions, series of similar transactions or
currently proposed transactions to which the Company or any officer, director,
their immediate families or other beneficial owner is a party or has a material
interest in which the amount exceeds $60,000.
ITEM 8. DESCRIPTION OF SECURITIES
Authorized Capital Stock
The authorized capital stock of the Company consists of 50,000,000 shares
of common stock with a par value of $.0001; and 25,000,000 shares of preferred
stock at a par value of $.0001.
11
<PAGE>
Common Stock. The holders of the common stock are entitled to one vote per
share on each matter submitted to a vote at any meeting of the shareholders.
Shares of common stock do not carry cumulative voting rights, and therefore a
majority of the shares of outstanding common stock will be able to elect the
entire Board of Directors, and if they do so, minority stockholders would not be
able to elect any persons to the Board of Directors. The Company's By-laws
provide that a majority of the issued and outstanding shares of the Company
shall constitute a quorum for shareholders' meeting except with respect to
certain matters for which a greater percentage quorum is required by statute or
the Company's Articles of Incorporation or By-laws.
Shareholders of the Company have no pre-emptive rights to acquire
additional shares of common stock or other securities. The common stock is not
subject to redemption and carries no subscription or conversion rights.
Preferred Stock. As of March 31, 1998, there were no preferred shares
issued or outstanding. The Board of Directors is authorized by the Articles of
Incorporation to prescribe by resolution the voting powers, designations,
preferences, limitations, restrictions, reactive rights and distinguishing
designations of the preferred shares if issued.
There are no provisions in the By-laws or Articles of Incorporation of the
Company which would delay, defer or prevent a change in control of the Company.
Part II
ITEM 1. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Information
The Company's common stock is listed on the OTC Bulletin Board of the NASD,
and began trading on November 24, 1997. The high and low bid prices since the
quarter then ending December 31, 1997, are as follows:
Quarter Ending: Bid
High Low
December 31, 1997 2 3/8 1 5/8
March 31, 1998 3 7/8
These bid prices were obtained from Prophet Information Services, Inc. and
do not necessarily reflect actual transactions, retail mark-ups, mark-downs or
commissions. The transactions include inter-dealer transactions.
(b) Holders
As of March 31, 1998, the number of holders of the Company's common shares
was 69.
(c) Dividends
There are presently no material restrictions that limit the ability of the
Company to pay dividends on common stock or that are likely to do so in the
future. The Company has not paid any dividends with respect to its common stock,
and does not intend to pay dividends in the foreseeable future.
ITEM 2. LEGAL PROCEEDINGS
The Company is not a party to any pending material legal proceeding. To the
knowledge of management, no federal, state or local governmental agency is
presently contemplating any proceeding against the Company. To the knowledge of
management, no director, executive officer or affiliate of the Company, any
owner of record or beneficially of more than 5% of the Company's common stock is
a party adverse to the Company or has a material interest adverse to the Company
in any proceeding.
12
<PAGE>
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
During the fiscal year ending March 31, 1998, the Company sold the
following securities under exemption from registration of Rule 504 of Regulation
D of the Securities Act of 1933. The offerings were made directly by the Company
through its directors and executive officers, who did not receive any additional
compensation for such effort. There were no underwriters or selling agents
involved in the transactions.
Date Title Amount
6/97 Common 565,000 Shares
6/97 Common 1,000,000 Shares
9/97 Common 216,000 Shares
11/97 Common 333,000 Shares
2/98 Common 61,000 Shares
The Company realized a total of $772,625 from these Rule 504 sales.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The By-laws of the Company state that to the extent allowed by the State
law, as same may be amended, and subject to the required procedure thereof, the
corporation shall indemnify any person who was or is a party of is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the corporation) by reason of the fact that he
is or was a director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement or conviction, or upon
a plea of nolo contendere or its equivalent, shall not of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
13
<PAGE>
TURNER, STONE & COMPANY
Certified Public Accountants
12700 Park Central Dr., Suite 1610
Dallas, Texas 75251
Telephone (972) 239-1660
Facsimilie (972) 239-1665
Independent Auditor's Report
Board of Directors
Cambridge Energy Corporation
Cocoa, Florida
We have audited the accompanying balance sheets of Cambridge Energy Corporation
as of March 31, 1998 and 1997, and the related statements of operations,
stockholders' equity, and cash flows for the year ended Mach 31, 1998 and the
period April 9, 1996 (Inception) through March 31, 1997. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cambridge Energy Corporation at
March 31, 1998 and 1997, and the results of its operations and its cash flows
for the aforementioned periods in conformity with generally accepted accounting
principles.
The Supplementary Information Regarding Oil and Gas Producing Activities on
pages 14 through 17 is not a required part of the basic financial statements but
is supplementary information required by the Financial Accounting Standards
Board. We have applied certain limited procedures, which consisted principally
of inquiries of management regarding the methods of measurement and presentation
of the supplementary information. However, we did not audit the information and
express no opinion on it.
/S/ Turner, Stone & Company
- ---------------------------
Certified Public Accountants
June 12, 1998
14
<PAGE>
FINANCIAL STATEMENTS
<TABLE>
CAMBRIDGE ENERGY CORPORATION
BALANCE SHEETS
MARCH 31, 1998 AND 1997
<CAPTION>
Assets
1998 1997
---- ----
<S> <C> <C>
Current assets:
Cash $ 12,139 $ 4,826
Accounts receivable, trade 114,039 10,242
Joint interest billings receivable 173,402 -
Marketable equity securities,
at fair value 24,525 65,025
Prepaid expenses 27,987 2,505
------------- -------------
Total current assets 352,092 82,598
------------- -------------
Property and equipment, net of $1,265 and
$0 of accumulated deprecation 45,259 -
------------- -------------
Oil and gas properties, accounted for using the successful efforts method:
Oil interests, proved properties, net
of $3,392 and $467 of accumulated
depletion 194,806 33,856
Support equipment, at cost, net of
$5,657 and $1,563 of accumulated
depreciation 19,939 17,196
------------- -------------
214,745 51,052
------------- -------------
$ 612,096 $ 133,650
============== ==============
The accompanying notes are an integral part of the financial statements.
15
</TABLE>
<PAGE>
<TABLE>
CAMBRIDGE ENERGY CORPORATION
BALANCE SHEETS
MARCH 31, 1998 AND 1997
<CAPTION>
Liabilities and Stockholders' Equity
1998 1997
---- ----
<S> <C> <C>
Current liabilities:
Accounts payable, trade $ 471,536 $ 28,184
Drilling advances 242,500 -
Advances from stockholders 36,734 -
------------- -------------
Total current liabilities 750,770 28,184
------------- -------------
Commitments and contingencies - -
Long-term liabilities - -
Stockholders' equity (deficit):
Preferred stock, $ .0001 par value,
25,000,000 shares authorized,
no shares issued or preferences
determined - -
Common stock, $ .0001 par value,
50,000,000 shares authorized,
8,340,786 and 1,200,000 shares
issued and outstanding, respectively 834 120
Paid in capital in excess of par 886,552 114,875
Accumulated deficit ( 985,560) ( 9,529)
Accumulated other comprehensive loss ( 40,500) -
------------- -------------
( 138,674) 105,466
------------- -------------
$ 612,096 $ 133,650
============== ==============
The accompanying notes are an integral part of the financial statements.
16
</TABLE>
<PAGE>
<TABLE>
CAMBRIDGE ENERGY CORPORATION
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
FOR THE YEAR ENDED MARCH 31, 1998 AND
THE PERIOD APRIL 9, 1996 (INCEPTION) THROUGH MARCH 31, 1997
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Revenues:
Oil and gas sales, net of royalties $ 73,899 $ 17,272
Lease operating and other income 53,289 -
------------- -------------
127,188 17,272
------------- -------------
Operating expenses:
Production costs 15,997 8,382
Exploration costs 840,450 2,915
Marketing expenses 620 -
General and administrative 237,868 13,474
Depletion 2,925 467
Depreciation 5,359 1,563
------------- -------------
1,103,219 26,801
------------ -------------
Net loss ( 976,031) ( 9,529)
Other comprehensive income, net of tax:
Unrealized loss in value of
marketable securities ( 40,500) -
------------- -------------
Comprehensive loss $( 1,016,531) $( 9,529)
============= =============
Net loss per share $( .14) $( .01)
============== ==============
Comprehensive loss per share $( .15) $( .01)
============== ==============
The accompanying notes are an integral part of the financial statements.
17
</TABLE>
<PAGE>
<TABLE>
CAMBRIDGE ENERGY CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED MARCH 31, 1998 AND
THE PERIOD APRIL 9, 1996 (INCEPTION) THROUGH MARCH 31, 1997
<CAPTION>
Accumulated Other
Common Stock Add'l Paid Comprehensive Accumulated
Shares Amount In Capital Loss Deficit Total
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock
for cash and marketable
equity securities 1,200,000 $ 120 $ 114,875 $ 114,995
Net loss ( 9,529) ( 9,529)
--------- --------- --------- ---------------- ----------- -----------
Balance at March 31, 1997 1,200,000 $ 120 $ 114,875 $ - $( 9,529) $ 105,466
Issuance of common stock
to repay stockholder
advances 5,184,786 $ 518 $ 25,406 $ 25,924
Issuance of common stock
for cash, net of $47,858
of offering costs 1,941,000 $ 194 $ 728,773 $ 728,967
Issuance of common stock
for services 15,000 $ 2 $ 17,498 $ 17,500
Unrealized loss in
marketable securities ( 40,500) $( 40,500)
Net loss ( 976,031) ( 976,031)
--------- ---------- --------- --------------- ----------- -----------
Balance at March 31, 1998 8,340,786 $ 834 $ 886,552 $( 40,500) $( 985,560) $( 138,674)
========= ========== ========= =============== ============ ===========
The accompanying notes are an integral part of the financial statements.
18
</TABLE>
<PAGE>
<TABLE>
CAMBRIDGE ENERGY CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1998 AND
THE PERIOD APRIL 9, 1996 (INCEPTION) THROUGH MARCH 31, 1997
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Oil and gas sales received $ 91,714 $ 7,030
Interest received 775 -
Cash paid to employees ( 81,536) -
Cash paid to suppliers ( 576,894) ( 9,663)
Interest paid - -
Income taxes paid - -
------------- --------------
Net cash used in operating activities ( 565,941) ( 2,633)
------------- ---------------
Cash flows from investing activities:
Purchase of property and equipment ( 53,361) ( 8,188)
Purchase of oil interests ( 134,257) ( 34,323)
------------- ---------------
Net cash used in investing activities ( 187,618) ( 42,511)
------------- ---------------
Cash flows from financing activities:
Advances from stockholders 31,905 -
Issuance of common stock 728,967 49,970
------------- --------------
Net cash provided by financing activities 760,872 49,970
------------ ---------------
Net increase in cash 7,313 4,826
Cash at beginning of period 4,826 -
------------- --------------
Cash at end of period $ 12,139 $ 4,826
============== ==============
The accompanying notes are an integral part of the financial statements.
19
</TABLE>
<PAGE>
<TABLE>
CAMBRIDGE ENERGY CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1998 AND
THE PERIOD APRIL 9, 1996 (INCEPTION) THROUGH MARCH 31, 1997
Reconciliation of Net Loss to Net Cash
Used in Operating Activities
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Net loss $( 976,031) $( 9,529)
------------- ---------------
Adjustment to reconcile net loss
to net cash used in operating
activities:
Depletion 2,925 467
Depreciation 5,359 1,563
Common stock issued for services 17,500 -
Loss on abandoned oil interest 1,135 -
(Increase) decrease in accounts receivable, trade ( 277,199) ( 10,242)
(Increase) decrease in prepaid expenses ( 25,482) ( 2,505)
Increase (decrease) in accounts payable, trade 443,352 17,613
Increase (decrease) in drilling advances 242,500 -
------------- -------------
Total adjustments 410,090 6,896
------------- --------------
Net cash used in operating activities $( 565,941) $( 2,633)
============= ==============
Supplemental Schedule of Non-Cash Investing
and Financing Activities
<CAPTION>
Issuance of common stock in exchange for
marketable equity securities $ - $ 65,025
Issuance of common stock for repayment
of advances from stockholders $ 25,924 -
Purchase of support equipment
in exchange for account payable $ - $ 10,571
Purchase of property and equipment through
advances from stockholders $ 30,753 -
The accompanying notes are an integral part of the financial statements.
20
</TABLE>
<PAGE>
CAMBRIDGE ENERGY CORPORATION
SUPPLEMENTARY INFORMATION REGARDING
OIL AND GAS PRODUCING ACTIVITIES
FOR THE YEAR ENDED MARCH 31, 1998 AND
THE PERIOD APRIL 9, 1996 (INCEPTION) THROUGH MARCH 31, 1997
UNAUDITED
The following supplementary oil and gas information is provided in
accordance with Statement of Financial Accounting Standards No. 69, Disclosures
about Oil and Gas Producing Activities (SFAS 69). The Company has properties in
only one reportable geographic area, all of which are oil properties.
1. CAPITALIZED COSTS RELATING TO OIL AND GAS PRODUCING ACTIVITIES
1998 1997
---- ----
Proved oil and gas properties $ 198,198 $ 34,323
Unproved oil and gas properties -
Support equipment, proved properties 25,586 18,759
------------ ----------
223,784 53,082
Accumulated depreciation and
depletion 9,039 2,030
------------ ----------
Net capitalized costs $ 214,745 $ 51,052
============ ==========
2. COSTS INCURRED IN OIL AND GAS PRODUCING ACTIVITIES FOR ABOVE
REFERENCED PERIODS
1998 1997
---- ----
Acquisition of proven properties $ 170,712 $ 53,082
Exploration costs 840,450 2,915
3. RESULTS OF OPERATIONS FOR OIL AND GAS PRODUCING ACTIVITIES
FOR THE ABOVE REFERENCED PERIODS
1998 1997
---- ----
Oil and gas sales $ 73,899 $ 17,272
Lease operating income 52,514 -
Production costs 15,997 8,382
Exploration expenses 840,450 2,915
Depreciation and depletion 7,009 2,030
Income tax expense - -
---------- ----------
Results of operations for oil
and gas producing activities
(excluding corporate overhead
and financing costs) $( 737,043) $ 3,945
=========== ==========
21
<PAGE>
CAMBRIDGE ENERGY CORPORATION
SUPPLEMENTARY INFORMATION REGARDING
OIL AND GAS PRODUCING ACTIVITIES
FOR THE YEAR ENDED MARCH 31, 1998 AND
THE PERIOD APRIL 9, 1996 (INCEPTION) THROUGH MARCH 31, 1997
UNAUDITED
4. RESERVE QUANTITY INFORMATION
The following estimates of proved developed reserve quantities are
estimates only, and do not purport to reflect realizable values or fair market
value of the Company's reserves. They are presented in accordance with the
guidelines established by the S.E.C. and disclosure requirements promulgated by
SFAS 69. The Company emphasizes the reserve estimates are inherently imprecise
and that estimates of new discoveries are more imprecise than those of currently
producing oil and gas properties. Accordingly, these estimates are expected to
change as future information becomes available. All of the Company's reserves
are located in southern Louisiana.
Proved reserves are estimated reserves of crude oil (including
condensate and natural gas liquids) and natural gas that geological and
engineering data demonstrate with reasonable certainty to be recoverable in
future years from known reservoirs under existing economic and operating
conditions. Proved developed reserves are those expected to be recovered through
existing wells, equipment, and operating method. The Company's proved developed
and undeveloped reserves and changes in them during the periods are as follows.
Oil Gas
(BBLS) (MCF)
------ -----
Purchase of minerals in place 663,779 -
Production ( 1,079) -
---------- ---------
Reserves at March 31, 1997 662,700 -
Revisions of previous estimates 99,143 -
Purchase of minerals in place 2,386,370 29,228,756
Production ( 3,763) ( 92,866)
---------- ------------
Reserves at March 31, 1998 3,144,450 29,135,890
========== ============
5. STANDARDIZED MEASURES OF DISCOUNTED FUTURE NET CASH FLOWS AND
CHANGES THEREIN RELATING TO PROVED OIL AND GAS RESERVES AT THE
ABOVE REFERENCED DATE
The standardized measure of discounted future net cash flows is computed by
applying year-end prices of oil and gas, estimated at $14.00 per barrel and
$2.18 per MMBTU, respectively, (with consideration of price changes only to the
extent provided by contractual arrangements) to the estimated future production
of proved oil and gas reserves, less estimated future expenditures (based on
year-end costs) to be incurred in developing and producing the proved reserves,
less estimated future income tax expenses (based on year-end statutory tax
rates, with consideration of future tax rates already legislated) to be incurred
on pretax net cash flows less basis of the properties and available credits, and
assuming continuation of existing economic conditions. The estimated future net
cash flows are then discounted using a rate of 10 percent a year to reflect the
estimated timing of the future cash flows.
22
<PAGE>
CAMBRIDGE ENERGY CORPORATION
SUPPLEMENTARY INFORMATION REGARDING
OIL AND GAS PRODUCING ACTIVITIES
FOR THE YEAR ENDED MARCH 31, 1998 AND
THE PERIOD APRIL 9, 1996 (INCEPTION) THROUGH MARCH 31, 1997
UNAUDITED
STANDARDIZED MEASURE OF DISCOUNTED FUTURE
NET CASH FLOW AT MARCH 31, 1998 AND 1997
1998 1997
---- ----
Future cash inflows $ 39,039,330 $ 3,276,240
Future production costs ( 9,131,220) ( 862,010)
Future development costs ( 2,000,750) ( 500,750)
Future income tax expenses ( 9,625,168) ( 661,630)
------------- ------------
Future net cash flows 11,282,192 1,251,850
10% annual discount for
estimated timing of cash flows ( 4,120,252) ( 499,660)
-------------- ------------
Standardized measure of
discounted future net cash
flows relating to proved
oil and gas reserves $ 7,161,940 $ 752,190
============== ============
RECONCILIATION OF CHANGES IN THE STANDARDIZED
MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
DURING THE ABOVE REFERENCED PERIOD
Beginning of period $ 752,190 $ -
Sales of oil and gas produced ( 73,899) ( 17,272)
Net changes in prices and production costs ( 105,394) -
Development costs incurred ( 840,450) ( 2,915)
Revisions of previous quantity estimates 347,972 -
Net changes from purchase of minerals
in place 7,081,521 772,377
----------- --------------
End of period $ 7,161,940 $ 752,190
=========== ==============
23
<PAGE>
CAMBRIDGE ENERGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Cambridge Energy Corporation (the Company) was incorporated in the
state of Nevada on April 9, 1996. The Company is an independent oil and gas
company engaged in the exploration and development of domestic oil and gas
properties. It presently owns two oil well properties and related support
equipment located in Louisiana.
Oil produced is sold to various crude oil purchaser in the Louisiana market.
Method of accounting for oil and gas properties
The Company uses the successful efforts method of accounting for oil
and gas producing activities, as set forth in the Statement of Financial
Accounting Standards No. 19, as amended. Costs to acquire mineral interests in
oil and gas properties, to drill and equip exploratory wells that find proved
reserves, and to drill and equip development wells are capitalized. Costs to
drill exploratory wells that do not find proved reserves, geological and
geophysical costs and costs of carrying and retaining unproved properties are
expensed as incurred.
Unproved oil and gas properties that are individually significant are
periodically assessed for impairment of value, and a loss is recognized at the
time of impairment by providing a valuation allowance. Other unproved properties
are amortized based on the Company's experience of successful drilling and
average holding period. Capitalized costs of producing oil and gas properties,
after considering estimated dismantlement and abandonment costs and estimated
salvage values, are depreciated and depleted by the unit-of-production method.
Support equipment and other property and equipment are carried at cost and
depreciated over their estimated useful lives.
On sale or retirement of a complete unit of a proved property, the cost
and related accumulated depreciation, depletion, and amortization are eliminated
from the property accounts, and the resultant gain or loss is recognized. On
retirement or sale of a partial unit of proved property, the cost is charged to
accumulated depreciation, depletion, and amortization with a resulting gain or
loss recognized in income.
On sale of an entire interest in an unproved property for cash or cash
equivalent, gain or loss on the sale is recognized, taking into consideration
the amount of any recorded impairment if the property has been assessed
individually. If a partial interest in an unproved property is sold, the amount
received is treated as a reduction of the cost of the interest retained.
Property and equipment
Property and equipment are stated at cost less accumulated
depreciation. Depreciation of property and equipment are being provided by
accelerated methods for financial and tax reporting purposes over estimated
useful lives of five to seven years. Marketable equity securities
The Company owns 75,000 common stock shares of a corporation publicly
traded on NASDAQ Small Cap market (Note 4) Pursuant to Financial Accounting
Standards No. 115 these securities are classified as available-for-sale and are
recorded in the accompanying financial statements at their fair value based on
the quoted market price of the stock. At March 31, 1998 and 1997, unrealized
loss on these securities totaled $40,500 and $0, respectively and have been
charged to comprehensive earnings.
24
<PAGE>
CAMBRIDGE ENERGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
Management estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash Flow
For purposes of the statement of cash flows, cash includes demand
deposits and time deposits with maturities of less than three months. None of
the Company's cash is restricted.
Net loss per share
For the year ended March 31, 1998 and the period April 9, 1996
(inception) through March 31, 1997, the net loss per share amount is based upon
6,853,389 and 1,200,000 weighted average shares of common stock outstanding,
respectively.
2. COMMITMENTS AND CONTINGENCIES
Leases
The Company is currently using office space provided free of charge by
a corporation owned by its President. The fair rental value of this space
provided is not material. At March 31, 1998, the Company was not obligated under
any noncancellable operating or capital lease obligations.
Employment contracts
In January 1998, the Company entered into employment agreements with
its two officers which provide for the payment of $285,000 in annual salaries
and additional compensation based on annualized gross revenues. The agreements
run through December 31, 2002 and in certain instances can be extended through
December 31, 2007.
Year 2000 computer compliance
The Company's computer hardware and the software is currently in
compliance with the year 2000 dating issues. Furthermore, management does not
believe any additional significant costs will be incurred in dealing with this
issue and the accompanying financial statements do not contain any reserve for
this contingency. The Company has charged to expense when incurred approximately
$2,000 related to becoming year 2000 compliant.
3. INCOME TAXES
The Company uses the accrual method of accounting for tax reporting
purposes. At March 31, 1998 and 1997, the Company had net operating loss
carryforwards for financial and tax reporting purposes of approximately
$1,060,000 and $9,000, respectively which expire through the year 2013.
Deferred federal income tax provisions result from temporary
differences in the recognition of revenues and expenses for tax and financial
reporting purposes primarily relating to different methods of accounting for
intangible exploration and development costs and depletion.
For the year ended March 31, 1998 and the period April 9, 1996
(inception) through March 31, 1997, pursuant to Statement of Financial
Accounting Standards No. 109, the Company has recognized deferred tax assets and
liabilities which have been offset by valuation allowances in the same amount.
Significant components of the Company's deferred tax assets and liabilities are
summarized below.
25
<PAGE>
CAMBRIDGE ENERGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
1998 1997
Deferred tax assets:
Net operating loss carryforward $ 352,101 $ 3,2240
----------- ----------
Deferred tax liability:
Intangible drilling costs 24,464 6,950
Depletion ( 994) -
------------ -----------
23,470 6,950
------------ -----------
328,631 ( 3,710)
Valuation allowance ( 328,631) 3,710
------------ -----------
Net deferred tax asset (liability) $ - $ -
============ ===========
4. RELATED PARTY TRANSACTIONS
Stockholder
In March 1997, the stockholders of the Company each contributed 37,500
common stock shares of a public company (Note 1), controlled by one of the
Company's stockholders, as additional paid in capital on common stock shares
issued by the Company earlier in the year. The shares were recorded at their
fair value at the date they were contributed to the Company.
During the year ended March 31, 1998, the Company received cash advances from
its two major stockholders totaling $31,905 and it also received property and
equipment with a fair value of $30,753 accounted for as additional advances.
These advances are non interest bearing, unsecured and payable upon demand. In
June 1997, the Company issued 5,184,786 common stock shares at a fair value of
$.005 per share to repay $25,924 of these advances. At March 31, 1998,
outstanding advances totaled $36,734.
During the year ended March 31, 1998, a stockholder and officer provided legal
services to the Company totaling $45,000. The services were valued at fair value
for the services provided.
5. FINANCIAL INSTRUMENTS
The Company's financial instruments consist of its cash and accounts
receivable.
Cash
The Company maintains its cash in bank deposit and other accounts
which, at times, may exceed federally insured limits. The Company has not
experienced any losses in such accounts, and does not believe it is subject to
any credit risks involving its cash.
Accounts receivable
The Company accounts receivable are unsecured and represent oil
production sales and lease operating income not collected at the end of the
year. Management believes these accounts receivable are fairly stated at
estimated net realizable amounts and do not require any reserve for
uncollectible amounts.
26
<PAGE>
CAMBRIDGE ENERGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
6. STOCK OPTIONS AND WARRANTS
During the year ended March 31, 1998, the Company issued various stock
options and warrants to employees and others. The Company uses the intrinsic
value method of accounting for stock options. Compensation cost for options
granted has not been recognized in the accompanying financial statements because
the exercise prices exceeded the current market prices of the Company's common
stock on the dates of grant. The options and warrants expire between April 1998
and June 2002 and are exercisable at prices from $.50 to $5.00 per option or
warrant.
The following is a schedule of the activity relating to the Company's
stock options and warrants. Other than the 1,098,000 warrants identified below
as granted during the year ended March 31, 1998, all other amounts relate to
stock options the Company has issued.
Year Ended Year Ended
March 31, 1998 March 31, 1997
-------------- --------------
Weighted Avg. Weighted Avg.
Shares Exercise Shares Exercise
(x 1,000) Price (x1,000) Price
--------- ------------ -------- -------------
Options and warrants
outstanding at
beginning of year - $ - - $ -
Granted:
Options 6,000 $ 1.00 - $ -
Warrants 1,098 $ 4.00 - $ -
Exercised - $ - - $ -
Expired:
Warrants ( 432) $ 4.00 - $ -
--------- --------
Options and warrants
outstanding and
exercisable at end
of year 6,666 $ 1.30 - $ -
===== ========
Weighted average fair
value of options and
warrants granted during
the year $ .32 - -
The following table summarizes information about the Company's stock options
and warrants outstanding at March 31, 1998, all of which are exercisable.
Weighted Average
Range of Number Remaining Weighted Average
Exercise Prices Outstanding Contractual Life Exercise Price
$ .50-1.50 6,000 3.1 years $ 1.00
$ 3.00 333 .1 years $ 3.00
$ 5.00 333 .1 years $ 5.00
The following pro forma disclosures reflect the Company's net loss per share
amounts assuming the Company accounted for stock options granted using the fair
value method pursuant to Statement of Financial Accounting Standards No. 123.
The fair value of each option granted was estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions: risk-free
interest rate of 5.6%; no expected dividends; expected lives of 3 years; and
expected volatility of 340.1%.
27
<PAGE>
CAMBRIDGE ENERGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
Year Ended Year Ended
March 31, 1998 March 31, 1997
-------------- --------------
Net loss $( 1,138,531) $( 9,529)
Net loss per share $( .17) $( .01)
During the year ended May 31, 1998, the Company also issued 15,000
common stock shares in exchange for services. These services were recorded at
their fair value of $17,500 and were charged to expense.
28
<PAGE>
Part III
Index to Exhibits
(3) 3.1 Articles of Incorporation
3.2 By-Laws
(10)Material Contracts
10.1 Farmout Agreement from Union Oil Company of California
with Assignment from Proven Fuel Exploration, Inc.
10.2 Management Agreement/Triton Wellhead
10.3 Executive Compensation Agreement (Perry Douglas West)
10.4 Executive Compensation Agreement (Lee M. Payne)
10.5 Executive Stock Option Agreements (Perry Douglas West)
10.6 Executive Stock Option Agreements (Lee M. Payne)
10.7 Qualified Equity Incentive Stock Option Plan
29
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act
of 1934, the registrant caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
Cambridge Energy Corporation
September 18, 1998
By: /s/ Perry Douglas West
--------------------------
Perry Douglas West
Chairman and Chief Executive Officer
30
Secretary of State
State of Nevada
State Capitol Complex
Carson City, Nevada 89710
ARTICLES OF AMENDMENT
CAMBRIDGE ENERGY CORPORATION
The Board of Directors of the Corporation held a special meeting on
April 23, 1997 at 9:00 a.m. at its offices at 215 South Riverside Drive, Cocoa,
Florida. All Directors were present to vote at the meeting.
Upon motion duly made a vote was taken and the following resolution was
passed unanimously:
RESOLVED that the Articles of Incorporation of the Company be
amended to increase the authorized shares in the Company as follows:
Number of
Shares Class or Series Par Value Per Share
50,000,000 COMMON $0.001
25,000,000 PREFERRED $0.001
The Board of Directors is authorized to prescribe by resolution the voting
powers, designations, preferences, limitations, restrictions, relative rights
and distinguishing designation of each of the above class or series of stock.
/s/ Perry Douglas West
----------------------
Dated: May 5, 1997 Perry Douglas West
Director
/s/ Lee M. Payne
----------------
Lee M. Payne
Director
<PAGE>
ARTICLES OF INCORPORATION
OF
CAMBRIDGE ENERGY CORPORATION
* * * * *
FIRST. The name of the corporation is
CAMBRIDGE ENERGY CORPORATION
SECOND. Its registered office in the State of Nevada is located at
3230 E. Flamingo Road, #156, Las Vegas, Nevada. The name of its resident agent
at that address is Gateway Enterprises, Inc. of Nevada.
THIRD. The number and class and/or series of shares the corporation
is authorized to issue is as follows:
Authorized Shares Class or Series Par Value
- ----------------- --------------- ---------
2,000,000 Common $.001
100,000 Preferred $.001
The Board of Directors is hereby authorized to prescribe by resolution
the voting powers, designations, preferences, limitations, restrictions,
relative rights and distinguishing designation of each of the above class or
series of stock.
FOURTH. The governing board of this corporation shall be known as
directors, and the number of directors may from time to time be increased or
decreased in such a manner as shall be provided by the bylaws of this
corporation.
The name and address of first Board of Directors, which shall be a
minimum of two (2) and a maximum of five (5) in number, is as follows:
NAME ADDRESS
---- -------
Perry Douglas West 215 South Riverside Drive
Cocoa, Florida 32922
Lee M. Payne 215 South Riverside Drive
Cocoa, Florida 32922
FIFTH. The name and address of each of the incorporators signing the
articles of incorporation are as follows:
NAME ADDRESS
---- -------
Perry Douglas West 215 South Riverside Drive
Cocoa, Florida 32922
Lee M. Payne 215 South Riverside Drive
Cocoa, Florida 32922
<PAGE>
WE, THE UNDERSIGNED, being each of the incorporators hereinbefore
named, for the purpose of forming a corporation pursuant to the General
Corporation Law of the State of Nevada, do make and file these articles of
incorporation, hereby declaring and certifying that the facts herein stated are
true, and accordingly have hereunto set our hands this day of March, 1996.
/s/ Perry Douglas West
----------------------
Perry Douglas West
/s/ Lee M. Payne
----------------
Lee M. Payne
STATE OF FLORIDA
County of Brevard
On this day of March, 1996, before me, a Notary Public, personally
appeared Perry Douglas West and Lee M. Payne, and who severally acknowledged
that they executed the above instrument.
-----------------------------
Notary Public
(Stamp)
CERTIFICATE OF ACCEPTANCE OF APPOINTMENT
BY RESIDENT AGENT
Gateway Enterprises, Inc. of Nevada hereby accepts the appointment as Resident
Agent of the above named corporation. Gateway Enterprises, Inc. Resident Agent
By____________________________Date________________________
BY-LAWS
OF
CAMBRIDGE ENERGY CORPORATION
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I - OFFICES 4
1.1 Principal Office 4
1.2 Other Offices 4
ARTICLE II - MEETING OF STOCKHOLDERS 4
2.1 Place of Meeting 4
2.2 Annual Meeting 4
2.3 Voting List 4
2.4 Special Meeting 4
2.5 Notice of Meeting 4
2.6 Quorum 4
2.7 Voting 5
2.8 Consent of Stockholders 5
2.9 Voting of Stock of Certain Holders 5
2.10 Treasury Stock 5
2.11 Fixing Record Date 5
ARTICLE III - BOARD OF DIRECTORS 6
3.1 Powers 6
3.2 Numbers, Election and Term 6
3.3 Vacancies, Additional Directors/Removal From Office 6
3.4 Regular Meeting 6
3.5 Special Meeting 6
3.6 Notice of Special Meeting 6
3.7 Quorum 7
3.8 Action Without Meeting 7
3.9 Compensation 7
3.10 Advisory Directors 7
ARTICLE IV - COMMITTEE OF DIRECTORS 7
4.1 Committee: Designation, Powers, Name 7
4.2 Minutes 8
4.3 Compensation 8
ARTICLE V - NOTICE 8
5.1 Methods of Giving Notice 8
5.2 Written Waiver 8
ARTICLE VI - OFFICERS 8
6.1 Officers 8
6.2 Election and Term of Office 8
6.3 Removal and Resignation 9
6.4 Vacancies 9
6.5 Salaries 9
6.6 Chairman of the Board and Chief Executive Officer 9
6.7 President 9
6.8 Vice President 9
6.9 Secretary 10
6.10 Treasurer 10
6.11 Assistant Secretary or Treasurer 10
ARTICLE VII - CONTRACTS, CHECKS AND DEPOSITS 10
7.1 Contracts 10
7.2 Checks, etc. 10
7.3 Deposits 10
<PAGE>
TABLE OF CONTENTS Cont'd
ARTICLE VIII - CERTIFICATION OF STOCK 11
8.1 Issuance 11
8.2 Lost Certificates 11
8.3 Transfers 11
8.4 Registered Stockholders 11
8.5 Restrictions and Options 12
ARTICLE IX - DIVIDENDS 12
9.1 Declaration 12
9.2 Reserve 12
ARTICLE X - INDEMNIFICATION 12
10.1 Third Party Actions 12
10.2 Actions by or in the Right of the Corporation 12
10.3 Determination of Conduct 13
10.4 Payment of Expenses in Advance 13
10.5 Indemnity Not Exclusive 13
ARTICLE XI - MISCELLANEOUS 13
11.1 Seal 13
11.2 Books 13
11.3 Fiscal Year 13
11.4 Severability 13
ARTICLE XII - EMPLOYMENT CONTRACTS 13
ARTICLE XIII - AMENDMENT OF BY-LAWS 14
<PAGE>
ARTICLE I - OFFICES
SECTION l.l - Principal Office. The principal office of the corporation shall be
in the State of Florida in the City of Cocoa, County of Brevard.
SECTION l.2 - Other Offices. The corporation may also have offices at such other
places both within and without the State of Florida, as the Board of Directors
may from time to time determine or the business of the corporation may require.
ARTICLE II - MEETING OF STOCKHOLDERS
SECTION 2.l - Place of Meeting. All meetings of stockholders for the election of
directors shall be held at such place, either within or without the State as
shall be designated from time to time by the Board of Directors and stated in
the notice of the meeting or in a duly executed waiver of notice thereof.
SECTION 2.2 - Annual Meeting. The annual meeting of stockholders shall be held
at such date and time as shall be designated from time to time by the Board of
Directors and stated in the notice of the meeting.
SECTION 2.3 - Voting List. The officer who has charge of the stock ledger of the
corporation shall prepare and make available at every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. The list shall be produced
and kept at the time and place of the meeting during the whole time thereof, and
may be inspected by any stockholder who is present.
SECTION 2.4 - Special Meeting. Special meetings of the stockholders, for any
purpose or purposes, unless otherwise prescribed by statute or by the Articles
of Incorporation, may be called by the Chairman of the Board or by the President
or by the Board of Directors or by written order of a majority of the directors
and shall be called by the President or the Secretary at the request in writing
of stockholders owning a majority in amount of any class of the capital stock of
the corporation issued and outstanding and entitled to vote. Such request shall
state the purpose of the proposed meeting. The Chairman of the Board or the
President or directors so calling, or the stockholders so requesting, any such
meeting shall fix the time and any place, either within or without the State as
the place for holding such meeting.
SECTION 2.5 - Notice of Meeting. Written notice of the annual, and each special
meeting of stockholders, stating the time, place and purpose or purposes
thereof, shall be given to each stockholder entitled to vote thereat not less
than ten nor more than sixty days before the meeting.
SECTION 2.6 - Quorum. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at any meeting of stockholders for the
transaction of business except at each election of directors and as otherwise
provided by statute or by the Articles of Incorporation. At each meeting for the
election of directors the holders of a majority of the issued and outstanding
capital stock of each such class entitled to vote thereat, present in person or
represented by proxy shall constitute a quorum. Notwithstanding the other
provisions of the Articles of Incorporation or these By-Laws, the holders of a
majority of the shares of capital stock entitled to vote thereat, present in
person or represented by proxy, whether or not a quorum is present, shall have
power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or represented. If
the adjournment is for more than 30 days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted at the meeting as originally
notified.
<PAGE>
SECTION 2.7 - Voting. When a quorum is present at any meeting of the
stockholders, the vote of the holders of a majority of the stock having voting
power present in person or represented by proxy shall decide any question
brought before such meeting, unless the question is one upon which, by express
provision of the statutes, or the Articles of Incorporation or of these By-Laws,
a different vote is required, in which case such express provision shall govern
and control the decision of such question. Every Stockholder having the right to
vote shall be entitled to vote in person, or by proxy appointed by an instrument
in writing subscribed by such Stockholder, bearing a date not more than eleven
months prior to voting, unless such instrument provides for a longer period, and
filed with the Secretary of the corporation before, or at the time of, the
meeting. If such instrument shall designate two or more persons to act as
proxies, unless such instrument shall provide to the contrary, a majority of
such persons present at any meeting at which their powers thereunder are to be
exercised shall have and may exercise all the powers of voting or giving
consents thereby conferred, or if only one be present, then such powers may be
exercised by that one; or, if an even number attend and a majority do not agree
on any particular issue, each proxy so attending shall be entitled to exercise
such powers in respect of the same portion of the shares as he is of the proxies
representing such shares.
SECTION 2.8 - Consent of Stockholders. Whenever the vote of stockholders at a
meeting thereof is required or permitted to be taken for or in connection with
any corporate action by any provision of the statutes, the meeting and vote of
stockholders may be dispensed with if all the stockholders who would have been
entitled to vote upon the action if such meeting were held shall consent in
writing to such corporate action being taken.
SECTION 2.9 - Voting of Stock of Certain Holders. Shares standing in the name of
another corporation, domestic or foreign, may be voted by such officer, agent or
proxy as the By-Laws of such corporation may prescribe, or in the absence of
such provision, as the Board of Directors of such corporation may determine.
Shares standing in the name of a deceased person may be voted by the executor or
administrator of such deceased person, either in person or by proxy. Shares
standing in the name of a guardian, conservator or trustee may be voted by such
fiduciary, either in person or by proxy, but no such fiduciary shall be entitled
to vote shares held in such fiduciary capacity without a transfer or such shares
into the name of such fiduciary. Shares standing in the name of a receiver may
be voted by such receiver. A stockholder whose shares are pledged shall be
entitled to vote such shares, unless in the transfer by the pledgor on the books
of the corporation, he has expressly empowered the pledgee to vote thereon, in
which case only the pledgee, or his proxy, may represent the stock and vote
thereon .
SECTION 2.l0 - Treasury Stock. The corporation shall not vote, directly or
indirectly, shares of its own stock owned by it; and such shares shall not be
counted in determining the total number of outstanding shares.
SECTION 2.ll - Fixing Record Date. The Board of Directors may fix in advance a
date, not exceeding sixty days preceding the date of any meeting of
stockholders, or the date for payment of any dividend or distribution, or the
date for the allotment of rights, or the date when any change, or conversion or
exchange of capital stock shall go into effect, or a date in connection with
obtaining a consent, as a records date for the determination of the stockholders
entitled to notice of, and to vote at, any such meeting and any adjournment
thereof, or entitled to receive payment of any such dividend or distribution, or
to receive any such allotment of rights, or to exercise the rights in respect of
any such change, conversion or exchange of capital stock, or to give such
consent, and in such case such stockholders and only such stockholders as shall
be stockholders of record on the date so fixed shall be entitled to such notice
of, and to vote at any such meeting and any adjournment thereof, or to receive
payment of such dividend or distribution, or to receive such allotment or
rights, or to exercise such rights, or to give such consent, as the case may be,
notwithstanding any transfer of any stock on the books of the corporation after
any such records date fixed as aforesaid.
<PAGE>
ARTICLE III - BOARD OF DIRECTORS
SECTION 3.l - Powers. The business and affairs of the corporation shall be
managed by its Board of Directors, which may exercise all such powers of the
corporation and do all such lawful acts and things as are not by statute or by
the Articles of Incorporation or by these By-Laws directed or required to be
exercised or done by the stockholders.
SECTION 3.2 - Number, Election and Term. The number of directors which shall
constitute the whole Board shall be a minimum of one (1). The directors shall be
elected at the annual meeting of stockholders, except as provided in Section 3.3
and as provided in the Articles of Incorporation and each director elected shall
hold office until his successor shall be elected and shall qualify. At each
election for directors every shareholder entitled to vote at such election shall
have the right to vote, in person or by proxy, the number of shares owned by him
for as many persons as there are directors to be elected and for whose election
he has a right to vote, or to cumulate his votes by giving one candidate as many
votes as the number of such directors multiplied by the number of his shares
shall equal, or by distributing such votes on the same principle among any
number of such candidates. Directors need not be residents of the State or
stockholders of the corporation. The holders of the voting stock shall be
entitled to elect all directors.
SECTION 3.3 - Vacancies, Additional Directors and Removal From Office. If any
vacancy occurs in the Board of Directors caused by death, resignation,
retirement, disqualification or removal from office of any director, or
otherwise, then a special election shall be called to elect all directorships
including those not currently vacant. If any new directorship is created by an
increase in the authorized number of directors, then the directorship shall be
filled by voting stock at a special meeting called for such purpose and a
director so chosen shall hold office until the next annual election and until
his successor shall be duly elected and shall qualify, unless sooner displaced.
A director may be removed either for or without cause at any special meeting of
stockholders duly called and held for such purpose.
SECTION 3.4 - Regular Meeting. A regular meeting of the Board of Directors shall
be held each year, without other notice than this By-laws, at the place of, and
immediately following, the annual meeting of stockholders; and other regular
meetings of the Board of Directors shall be held each year, at such time and
place as the Board of Directors may provide, by resolution. Members of the Board
of Directors, or of any committee designated by such Board, may participate in
any regular or special meeting of such Board or committee by means of telephone
conference or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
pursuant to this section shall constitute presence in person at such meeting.
SECTION 3.5 - Special Meeting. A special meeting of the Board of Directors may
be called by the Chairman of the Board or by the President and shall be called
by the Secretary on the written request of any two directors. The Chairman or
President so calling, or the directors so requesting, any such meeting, shall
fix the time and any place, either within or without the State, as the place for
holding such meeting.
SECTION 3.6 - Notice of Special Meeting. Written notice of special meetings of
the Board of Directors shall be given to each director at least 48 hours prior
to the time of such meeting. Any director may waive notice of any meeting. The
attendance of a director at any meeting shall constitute a waiver of notice of
such meeting, except where a director attends a meeting for the purpose of
objecting to the transaction of any business because the meeting is not lawfully
called or convened. Neither the business to be transacted at, nor the purpose of
any special meeting of the Board of Directors need to be specified in the notice
or waiver of notice of such meeting, except that notice shall be given of any
proposed amendment to the By-Laws if it is to be adopted at any special meeting
or with respect to any other matter where notice is required by statute.
<PAGE>
SECTION 3.7 - Quorum. A majority of the Board of Directors shall constitute a
quorum for the transaction of business at any meeting of the Board of Directors,
and the act of a majority of the directors present at any meeting at which there
is a quorum shall be the act of the Board of Directors, except as may be
otherwise specifically provided by statute, by the Articles of Incorporation, or
by these By-Laws. If a quorum shall not be present at any meeting of the Board
of Directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting until a quorum shall
be present.
SECTION 3.8 - Action Without Meeting. Unless otherwise restricted by the
Articles of Incorporation or these By-Laws, any action required or permitted to
be taken at any meeting of the Board of Directors, or of any committee thereof
as provided in Article IV of these By-Laws, may be taken without a meeting, if a
written consent thereto is signed by all members of the Board or of such
committee, as the case may be, and such written consent is filed with the
minutes of proceedings of the Board or committee.
SECTION 3.9 - Compensation. Directors, as such, shall not be entitled to any
stated salary for their services unless voted by the stockholders or the Board
of Directors; but by resolution of the Board of Directors, a fixed sum and
expenses of attendance, if any, may be allowed for attendance at each regular or
special meeting of the Board of Directors or any meeting of a committee of
directors. No provision of these By-Laws shall be construed to preclude any
director from serving the corporation in any other capacity and receiving
compensation therefor.
SECTION 3.l0 - Advisory Directors. The Board of Directors may establish the
position of non-voting Advisory Director of such number and with such duties and
compensation as the Board may, from time to time, determine.
ARTICLE IV - COMMITTEE OF DIRECTORS
SECTION 4.l - Committee: Designation, Powers, Name. The Board of Directors may,
by resolution passed by a majority of the whole Board, designate one or more
committees, including an Executive Committee, each such committee to consist of
two or more of the directors of the corporation. The committee shall have an may
exercise such of the powers of the Board of Directors in the management of the
business and affairs of the corporation as may be provided in such resolution.
The committee may authorize the seal of the corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending the Articles of Incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the corporation's property and
assets, recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the By-Laws of the corporation; and no
such committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. Any member of the committee may be removed by a
majority or the members of the Board of Directors with or without cause. The
Board of Directors may designate one or more directors as alternate members of
any committee, who may replace any absent or disqualified member at any meeting
of such committee. In the absence or disqualification of any member of such
committee or committees, the member or members thereof present at any meeting
and not disqualified from voting, whether or not he or they constitute a quorum,
may unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Such committee
or committees shall have such name or names and such limitations of authority as
may be determined from time to time by resolution adopted by the Board of
Directors.
SECTION 4.2 - Minutes. Each committee of directors shall keep regular minutes of
its proceedings and report the same to the Board of Directors when required.
SECTION 4.3 - Compensation. Members of special or standing committees may be
allowed compensation for attending committee meetings, if the Board of Directors
shall so determine.
<PAGE>
ARTICLE V - NOTICE
SECTION 5.l - Methods of Giving Notice. Whenever under the provisions of the
statutes, the Articles of Incorporation, or these By-Laws, notice is required to
be given to any director, member of any committee or stockholder. Such notice
shall be in writing and delivered personally or mailed to such director, member
or stockholder, provided that in the case of a director, or member of any
committee, such notice may be given orally or by telephone or telegram. If
mailed, notice to a director, member of a committee or stockholder shall be
deemed to be given when deposited in the United States mail first class in a
sealed envelope, with postage thereon prepaid, addressed. In the case of a
stockholder, to the stockholder at the stockholder's address as it appears on
the records of the corporation. In the case of a director or a member of a
committee, to such person at his business address. If sent by telegraph, notice
to a director or member of a committee shall be deemed to be given when the
telegram, so addressed, is delivered to the telegraph company.
SECTION 5.2 - Written Waiver. Whenever any notice is required to be given under
the provision of the statutes, the Articles of Incorporation or these By-Laws, a
waiver thereof in writing, signed by the person or persons entitled to said
notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE VI - OFFICERS
SECTION 6.l - Officers. The officers of the corporation shall be a Chairman of
the Board and Chief Executive Officer (the President may serve in this capacity
at the direction of the Board of Directors), a President, one or more Vice
Presidents, any one or more of which may be designated an Executive Vice
President and a Vice President-Finance, a Secretary and a Treasurer. The Board
of Directors may, by resolution, create the office of Vice Chairman of the Board
and define the duties of such office. The Board of Directors may appoint such
other officers and agents, including Assistant Vice Presidents, Assistant
Secretaries and Assistant Treasurers, as it shall deem necessary, who shall hold
their offices for such terms and shall exercise such powers and perform such
duties as shall be determined by the Board. Any two or more offices except as
prohibited by law may be held by the same person. No officer shall execute,
acknowledge, verify or countersign any instrument on behalf of the corporation
in more than one capacity, if such instrument is required by law, by these
By-Laws or by any act of the corporation to be executed, acknowledged, verified
or countersigned by two or more officers. None of the officers need to be a
director or stockholder of the corporation.
SECTION 6.2 - Election and Term of Office. The officers of the corporation shall
be elected annually by the Board of Directors at its first regular meeting held
after the annual meeting of stockholders or as soon thereafter as conveniently
possible. Each officer shall hold office until his successor shall have been
chosen and shall have qualified or until his death or the effective date of his
resignation or removal.
SECTION 6.3 - Removal and Resignation. Any officer or agent elected or appointed
by the Board of Directors may be removed without cause by the affirmative vote
of a majority of the board of Directors whenever, in its judgment, the best
interests of the corporation shall be served thereby, but such removal shall be
without prejudice to the contractual rights, if any, of the person so removed.
Any officer may resign at any time by giving written notice to the corporation.
Any such resignation shall take effect at the date of the receipt of such notice
or any later time specified therein, and unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
SECTION 6.4 -Vacancies. Any vacancy occurring in any office of the corporation
by death, resignation, removal or otherwise, may be filled by the Board of
Directors for the unexpired portion of the term.
SECTION 6.5 -Salaries. The salaries of all officers and agents of the
corporation shall be fixed by the Executive Committee, if any, or if there is no
such committee, by the Board of Directors and no officer shall be prevented from
receiving such salary by reason of his also being a director.
<PAGE>
SECTION 6.6 - Chairman of the Board and Chief Executive Officer. The Chairman of
the Board and Chief Executive Officer shall be the principal executive officers
of the corporation and shall preside at all meetings of the Board of Directors,
or of the stockholders of the corporation. In the Chairman's absence, such
duties shall be attended to by the President. The Chairman shall formulate and
submit to the Board of Directors matters of general policy for the corporation
and shall perform such other duties as usually appertain to the office or as may
be prescribed by the Board of Directors. In the absence of the President, or in
the event of his refusal or inability to act, the Chairman shall perform the
duties and exercise the powers of the President.
SECTION 6.7 - President. The President shall be subject to the control of the
Board of Directors and shall, in general, supervise and control the business and
affairs of the corporation. In the absence of the Chairman of the Board, the
President shall preside at all meetings of the Board of Directors and of the
stockholders. He may also preside at any such meeting attended by the Chairman
of the Board if he is so designated by the Chairman. He shall have the power to
appoint and remove subordinate officers, agents and employees, except those
elected or appointed by the Board of Directors. The President shall keep the
Board of Directors fully informed, and shall consult them concerning the
business of the corporation. He may sign with the Secretary or any other officer
of the corporation thereunto authorized by the Board of Directors, certificates
for shares of the corporation, and any deeds, bonds, mortgages, contracts,
checks, notes, drafts, or other instruments which the Board of Directors has
authorized to be executed, except in cases where the signing and execution
thereof has been expressly delegated by these By-Laws or by the Board of
Directors to some other officer or agent of the corporation, or shall be
required by law to be otherwise executed. He shall vote, at the direction of the
Board of Directors, all shares of stock of any other corporation standing in the
name of the corporation and, in general, he shall perform all other duties
normally incident to the office of President and such other duties as may be
prescribed by the stockholders, or the Board of Directors, from time to time.
SECTION 6.8 - Vice President. In the absence of the President and the Chairman,
or in the event of their inability or refusal to act, the Executive Vice
President (or in the event there shall be no Vice President designated Executive
Vice President), the Vice President-Finance shall perform the duties and
exercise the powers of the President and/or Chairman and Chief Executive
Officer. Any Vice President may sign, with the Secretary or Assistant Secretary,
certificates for shares of the corporation. The Vice Presidents shall perform
such other duties as from time to time may be assigned to them by the President,
or the Board of Directors.
SECTION 6.9 - Secretary. The Secretary shall (a) keep the minutes of the
meetings of the stockholders, the Board of Directors and committees of
directors; (b) see that all notices are duly given in accordance with the
provisions of these By-Laws and as required by law; (c) be custodian of the
corporate records and of the seal of the corporation, and see that the seal of
the corporation or a facsimile thereof is affixed to all certificates for shares
prior to the issue thereof and to all documents, the execution of which on
behalf of the corporation under its seal is duly authorized in accordance with
the provisions of these By-Laws: (d) keep or cause to be kept a register of the
post office address of each stockholder which shall be furnished by such
stockholder; (e) sign with the President, or an Executive Vice President or Vice
President, certificates for shares of the corporation, the issue of which shall
have been authorized by resolution of the Board of Directors; (f) have general
charge of the stock transfer books of the corporation; and (g) in general,
perform all duties normally incident to the office of Secretary and such other
duties as from time to time may be assigned to him/her by the President, or the
Board of Directors.
SECTION 6.l0 - Treasurer. If required by the Board of Directors, the Treasurer
shall give a bond for the faithful discharge of his duties in such sum and with
such surety or sureties as the Board of Directors shall determine. He shall have
charge and custody of and be responsible for all funds and securities of the
corporation; receive and give receipts for monies due and payable to the
corporation from any source whatsoever and deposit all such monies in the name
of the corporation in such banks, trust companies or other depositories as shall
be selected in accordance with the provision of Section 7.3 of these By-Laws,
and in general, perform duties normally incident to the office of Treasurer and
such other duties as from time to time may be assigned to him by the President,
or the Board of Directors.
<PAGE>
SECTION 6.ll - Assistant Secretary or Treasurer. The Assistant Secretaries and
Assistant Treasurers shall, in general, perform such duties as shall be assigned
to them by the Secretary or the Treasurer respectively, or by the President, or
the Board of Directors. The Assistant Secretaries and Assistant Treasurers
shall, in the absence of the Secretary or Treasurer respectively, perform all
functions and duties which such absent officers may delegate, but such
delegation shall not relieve the absent officer from the responsibilities of his
office. The Assistant Secretaries may sign, with the President or a Vice
President, certificates for shares of the corporation, the issue of which shall
have been authorized by a resolution of the Board of Directors. The Assistant
Treasurers shall respectively, if required by the Board of Directors, give bonds
for the faithful discharge of their duties in such sums and with such sureties
as the Board of Directors shall determine.
ARTICLE VII - CONTRACTS, CHECKS AND DEPOSITS
SECTION 7.l - Contracts. Subject to the provisions of Section 6.l, the Board of
Directors or Executive committee may authorize any officer, officers, agent, or
agents to enter into any contract or execute and deliver any instrument in the
name of and on behalf of the corporation, and such authority may be general or
confined to specific instances.
SECTION 7.2 - Checks, etc. All checks, demands, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the corporation, shall be signed by such officer or officers or such agent or
agents of the corporation, and in such manner as shall be determined by the
Board of Directors of Management Committee.
SECTION 7.3 - Deposits. All funds of the corporation not otherwise employed
shall be deposited from time to time to the credit of the corporation in such
banks, trust companies or other depositories as the Board of Directors or
Executive Committee may select.
ARTICLE VIII - CERTIFICATES OF STOCK
SECTION 8.l - Issuance. Each stockholder of this corporation shall be entitled
to a certificate or certificates showing the number of shares of stock
registered in his name on the books of the corporation. The certificates shall
be in such form as may be determined by the Board of Directors, shall be issued
in numerical order and shall be entered in the books of the corporation as they
are issued. They shall exhibit the holder's name and number of shares and shall
be signed by the President or a Vice President and by the Secretary or an
Assistant Secretary. If any certificate is countersigned (l) by a transfer agent
other than the corporation or any employee of the corporation, or (2) by a
registrar other than the corporation or any employee of the corporation, and
other signature on the certificate may be a facsimile. If the corporation shall
be authorized to issue more than one class of stock or more than one series of
any class, the designations, preferences and relative participating, optional or
other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and rights shall
be set forth in full or summarized on the face or back of the certificate which
the corporation shall issue to represent such class of stock; provided that,
except as otherwise provided by statute, in lieu of the foregoing requirements
there may be set forth on the face or back of the certificate which the
corporation shall issue to represent such class or series of stock, a statement
that the corporation will furnish to each stockholder who so requests, the
designations, preferences and relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitation or restrictions of such preferences and rights. All certificates
surrendered to the corporation for transfer shall be canceled and no new
certificate shall be issued until the former certificate for a like number of
shares shall have been surrendered and canceled, except that in the case of a
lost, stolen, destroyed or mutilated certificate a new one may be issued
therefor upon such terms and with such indemnity, if any, to the corporation as
the Board of Directors may prescribe. Certificates shall not be issued
representing fractional shares of stock.
<PAGE>
SECTION 8.2 - Lost Certificates. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require or to give the corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the corporation
with respect to the certificate or certificates alleged to have been lost,
stolen or destroyed, or both.
SECTION 8.3 - Transfers. Upon surrender to the corporation or the transfer agent
of the corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, it shall be
the duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Transfers of shares shall be made only on the books of the corporation by the
registered holder thereof, or by his attorney thereunto authorized by power of
attorney and filed with the Secretary of the corporation or the Transfer Agent.
SECTION 8.4 - Registered Stockholders. The corporation shall be entitled to
treat the holder of record of any share or shares of stock as the holder in fact
thereof and, accordingly, shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of the State.
SECTION 8.5 - Restrictions and Options. Shareholders may enter into agreements
among themselves reasonably restricting the transferability of shares owned by
them or defining rights granted among Shareholders to purchase and/or sell such
shares.
ARTICLE IX - DIVIDENDS
SECTION 9.l - Declaration. Dividends upon the capital stock of the corporation,
subject to the provisions of the Articles of Incorporation if any and subject to
the provisions of Section 9.2, shall be declared monthly by the Board of
Directors at any regular or special meeting, provided and to the extent that
cumulative profits to date exceed one-half of the operating expenses per month
and provided that dividends are declared only to the extent that profits exceed
such amount. Dividends shall be paid in cash, subject to the provisions of the
Articles of Incorporation and applicable law.
SECTION 9.2 - Reserve. In no event shall a dividend be declared if cash on hand
will as a result of the dividend be less than one-half of the month's expected
operating expenses (the "Operating Reserve"). Before payment of any dividend
there may also be set aside out of any funds of the corporation available for
dividends such sum or sums as the Board of Directors from time to time in their
absolute discretion think proper as a reserve or reserves to meet contingencies,
or for equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the interest of the corporation, and the Directors may modify or
abolish and such reserve in the manner in which it was created.
ARTICLE X - INDEMNIFICATION
SECTION l0.l - Third Party Actions. To the extent allowed by the State law, as
same may be amended, and subject to the required procedure thereof, the
corporation shall indemnify any person who was or is a party of is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the corporation) by reason of the fact that he
is or was a director, officer, employee or agent of the corporation, or is or
<PAGE>
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement or conviction, or upon
a plea of nolo contendere or its equivalent, shall not of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
SECTION l0.2 - Actions by or in the Right of the Corporation. To the extent
allowed by State law, as same may be amended, and subject to the required
procedure thereof, the corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable for negligence or misconduct in the performance of
his duty to the corporation unless and only to the extent that the court in
which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court shall deem proper.
SECTION l0.3 - Determination of Conduct. The determination that an officer,
director, employee, or agent has met the applicable standard of conduct set
forth in Sections l0.l and l0.2 (unless indemnification is ordered by a court or
unless State law, as same may be amended, requires otherwise) shall be made (l)
by the Board of Directors by a majority vote of a quorum consisting of directors
who were not parties to such action, suit or proceeding; (2) if such quorum is
not obtainable, or even if obtainable a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion; or (3) by the
stockholders.
SECTION l0.4 - Payment of Expenses in Advance. Expenses incurred in defending a
civil or criminal action, suit or proceeding shall be paid by the corporation in
advance of the final disposition of such action, suit or proceeding as
authorized by the Board of Directors in the specific case upon receipt of an
undertaking by or on behalf of the director, officer, employee or agent to repay
such amount, unless it shall ultimately be determined that he is entitled to be
indemnified by the corporation as authorized in this Article X.
SECTION l0.5 - Indemnity Not Exclusive. The indemnification provided hereunder
shall not be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under any other By-Laws, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee, or agent, and shall inure to the benefit of the heirs,
executors and administrators of such a person.
ARTICLE XI - MISCELLANEOUS
SECTION ll.l - Seal. The corporate seal shall be in such form as prescribed by
the Board of Directors. The seal may be used by causing it or a facsimile
thereof to be impressed or affixed, or otherwise reproduced.
<PAGE>
SECTION ll.2 - Books. The Books of the corporation may be kept (subject to any
contrary provision contained in State law) outside the State or at the offices
of the corporation, or at such other place or places as may be designated from
time to time by the Board of Directors.
SECTION ll.3 - Fiscal Year. The fiscal year of the corporation shall be April l
through March 3l.
SECTION ll.4 - Severability. The invalidity of any one or more of the
provisions, clauses, sections or Articles hereof shall not affect the validity
of the remaining provisions, clauses, sections or Articles.
ARTICLE XII - EMPLOYMENT CONTRACTS
No contract of employment or amendment to a contract of employment
between the Corporation and any person(s), firm(s), corporation(s),
partnership(s), association(s) or other entity(s), or any combination of any of
the above, whether oral or in writing, for a period of time to exceed 90 days
shall be binding upon the corporation unless and until:
(i) Such contract shall have been approved by a majority vote of the
Board of Directors of the Corporation, called and held in accordance
with the By-Laws and,
(ii) Such approval of such contract by the Board of Directors of the
Corporation shall have been ratified by a majority vote by class of
each and every class of shares entitled to vote. Such vote of the
shareholders shall be at a meeting of shareholders specifically called
or such purpose, all requisite notices having been given in accordance
with the corporation's Articles of Incorporation and its By-Laws
relative to calls and notices for special meetings of shareholders.
This paragraph of the By-Laws shall not be amended or eliminated until
ratified by a majority vote by class of each and every class of shares entitled
to vote. Such vote of the shareholders shall be at a meeting of shareholders
specifically called for such purpose, all requisite notices having been given in
accordance with the corporation's Articles of Incorporation and its By-Laws
relative to calls and notices for special meetings of shareholders.
ARTICLE XIII - AMENDMENT OF BY-LAWS
These By-Laws may be altered, amended or repealed and new by-laws be
adopted by the Board of Directors and by the shareholders at any regular or
special meeting thereof; provided, however, that a vote of more than eighty
percent (80%) of shareholders in favor of change or amendment to these By-Laws
shall be required before any such change or amendment to these By-Laws shall be
effective,
ADOPTED at a meeting of the Directors of Cambridge Energy Corporation held the
29th day of March, 1996.
ATTEST:
BY: /s/ Lee M. Payne BY: /s/ Perry D. West
- ----------------------- -----------------------
Secretary/Treasurer President
PROVEN FUEL EXPLORATION INC,
Post Office Box 52552
LARAYETTE, LA 70505-2552
(318) 232-9371
May 27, 1997
Cambridge Energy Corporation
Tara Place West, Suite 200
1604 West Pinhook Road
Lafayette, Louisiana 70508
ATTN: Mr. Perry West
Subject: Acquisition Agreement
Houma Field Prospect, Terrebonne Parish, Louisiana
Gentlemen:
This letter shall evidence the agreement by and between Proven Fuel
Exploration, Inc., a Louisiana corporation (hereinafter referred to as "Owner")
herein represented by William M. Clay, its duly authorized President and
Cambridge Energy Corporation, a Nevada corporation (hereinafter sometimes
referred to as "Operator") herein represented by Perry West, its duly authorized
President, relative to the subject prospect as follows:
I. ASSIGNMENT OF INTEREST
In and for the cash consideration recited below Owner agrees to assign to
Operator as soon as reasonably practicable, all its working (expense) interest
in and to the following:
1. Those certain Oil, Gas and Mineral Leases described on Exhibit "A"
attached hereto;
2. That certain Farmout Agreement from Union Oil Company of California to
Proven Fuel Exploration, Inc., dated August 1, 1996 and amended by letter
January 17, 1997;
3. That certain commitment letter to farmout from Kaiser-Francis Oil
Company to Proven Fuel Exploration, Inc., dated October 16, 1996.
said leases and farmouts sometimes hereinafter collectively referred to as
"Subject Leases".
<PAGE>
Cambridge Energy Corporation
May 27, 1997
Page 2
Operator hereby acknowledges receipt of a full and complete copy of the
Subject Leases and is familiar with the terms and obligations contained therein
and agrees to assume and discharge at its sole cost and risk all obligations of
Owner in the Subject Leases, including payment of any rentals required to
maintain all or any portion of the Subject Leases. As partial consideration (in
addition to the drilling the Obligatory. Initial Test Well) for the assignment
from Owner of the Subject Leases described on Exhibit "A" and for the assignment
(subject to any consents to assign required by Unocal and Kaiser-Frances) from
Owner of those rights under the Farmout Agreements and/or commitments described
above, Operator agrees to pay Owner for its costs and expenses relating to
finding fees, leasehold and brokerage costs, geological and/or geophysical
expenses incurred by Owner in connection with this prospect. Such agreed to
non-refundable sum is Sixty Thousand and No/100 ($60,000.00) dollars cash, due
and payable by certified check to Owner by Operator upon execution of this
agreement.
Closing of this agreement and payment of the sum herein specified shall be
performed no later than June 10, 1997. Failure for any reason to close on or
before this date, shall render this agreement and any obligations among the
parties hereto ipso facto terminated, other than those confidentiality
obligations expressly and tacitly assumed by Operator preparatory to execution
of this agreement involving certain confidential geological, leasehold and other
data related thereto provided by Owner to Operator and which remains the sole
and exclusive proprietary property of Owner.
The assignment by Owner of the Subject Leases to Operator shall be on a
mutually agreeable form and shall, among other things, be subject to this letter
and deliver to Operator a Seventy-two (72%) percent net revenue interest
leasehold, reserving to Owner the difference between Lessor's royalty and other
burdens and 72% of 8/Sths as a cost free overriding royalty interest. In no
event will Owner's overriding royalty interest be less than Three (3%) percent
of 8/8ths. Participant hereby obligates and binds itself and all future
assignees acquiring any interest(s) pursuant to this agreement within the Area
of Mutual Interest hereinafter described to be subject to and deliver to Owner a
overriding royalty interest, being the difference between any particular
Lessor's royalty interest and 72% of 8/8ths, but in no event less than 3% of
8/8ths.
<PAGE>
Cambridge Energy Corporation
May 27, 1997
Page 3
Additionally, Owner shall retain and reserve the difference between existing
burdens, including Farmor's overriding royalty interest and 72% overriding
royalty interest on any acreage or assignment earned under any Farmout Agreement
affecting this prospect, but in no event less than a 3% of 8/8ths overriding
royalty interest affecting earned farmout leases. Owner shall be due and
entitled to a recordable assignment of overriding royalty interest in the
quantum setforth above within thirty (30) days of any leasehold acquisitions,
including acreage earned under any additional farmouts, by Operator, together
with a true copy of the particular instrument(s) and plat and any broker's and
lease purchase report associated with the particular acquisition.
The overriding royalty interests due Owner hereunder and elsewhere in
this agreement shall be paid to Owner free and clear of any charge, expense or
fee of any nature whatsoever. Without limiting the generality of the foregoing,
Operator and its assigns shall make no deductions whatsoever for charges or fees
for well related costs, trucking, transportation, piping, collecting, cycling,
recycling, lifting, pumping, treating, processing, handling, pressuring,
repressuring or separating, including any costs and expenses incurred by
Operator in marketing gas or oil and costs and expenses incurred in any dispute
between Operator and any purchaser of oil or gas. The overriding royalty
interests shall be due and payable at the same time as the Lessor's royalty
interest.
Any assignment made by hereunder shall be without warranty, express or
implied, except as to acts by, through or under Assignor. If less than a full
mineral interest is found to be owned in any tract subject to this agreement,
the interest of Owner and Operator hereto shall be proportionately reduced.
II. OBLIGATORY INITIAL TEST WELL
As additional consideration for this agreement, which without, Owner
would not have entered into it, Operator expressly agrees to and shall commence
or cause to be commenced, at Operator's sole cost, risk and expense, the actual
drilling of a Test Well ("Initial Test Well") at a mutually acceptable location
in Section 15 or 16, Township 17 South, Range 17 East, Terrebonne Parish,
Louisiana, on or before July 31, 1997 and prosecute drilling without undue
interruption to Objective Depth.
<PAGE>
Cambridge Energy Corporation
May 27, 1997
Page 4
Said Initial Test Well shall be drilled in a good and workmanlike manner without
undue delay to a contract total vertical depth of 12,500' or depth sufficient to
filly penetrate and test the Krumbhaar Sand (referred to herein as "Objective
Depth"), whichever is lesser. The Krumbhaar Sand is defined as the stratigraphic
equivalent of the zone found between the depths of 12,040 feet and 12,442 feet
ELM in the Union Oil of California - Calvert & Todd No. 6 well, located in
Section 16, T17S-R17E, Terrebonne Parish, Louisiana. Cambridge Energy
Corporation shall be designated as Operator of the Initial Test Well and the
prospect area.
III. SUBSTITUTE WELL
If prior to reaching Objective Depth, should the Initial Test Well
encounter impenetrable substances or other conditions which, in the judgment of
Operator would make further drilling, testing or other operations impracticable,
then Operator may plug and abandon the Initial Test Well, and in such event,
Operator shall have the right and option to commence or cause to be commenced
the actual drilling of a substitute well within one hundred twenty (120) days
after the abandonment of the Initial Test Well. Such substitute well shall be
drilled by the same manner and subject to the same terms, obligations and
conditions as these applicable to the Initial Test Well.
IV. FAILURE TO TIMELY DRILL
If actual drilling of the Initial Test Well is not commenced by July
31, 1997, (or if a Substitute Well is applicable hereunder and Operator fails to
commence actual drilling within 120 days after abandonment of the Initial Test
Well) and drill to Objective Depth, then, upon Owner's sole election and option,
but not the obligation, to be exercised by written request by Owner to Operator,
Operator agrees to promptly assign to Owner in a recordable form, at no cost
whatsoever to Owner, all interests herein assigned Operator and all leasehold
interests hereinafter acquired by Operator and its venture partners, pursuant to
the Area of Mutual Interest hereinafter described, without additional burdens
beyond the Lessor's royalty interest. All leasehold related costs, and other
obligations incurred by Operator prior to the date of reassignment, which shall
be effective as of the date of Owner's written request to reassign, shall be
home solely by Operator.
<PAGE>
Cambridge Energy Corporation
May 27, 1997
Page 5
V. PROSPECT AREA AND AREA OF I~FUTUAL INTEREST
The Prospect Area and Area of Mutual Interest are hereby defined as
those lands cross-hatched on Exhibit "B", attached hereto and made a paint
hereof. Any new leaseholds or leasehold rights secured within the Area of Mutual
Interest during the period in which the Subject Leases on Exhibit "A" are in
force and effect, or the earned farmout leases are in force and effect and for
six months thereafter are acquired by Operator, its heirs, successors,
executors, personal representatives or assigns, said parties must tender to and
assign to Owner a cost free overriding royalty interest being the difference
between the existing Lessor's royalty interest and 72% of 8/Sths, but in no
event less than 3% of 8/8ths. Said assignment of overriding royalty interest
shall be due to Owner in a recordable form within thirty (30) days of each
acquisition.
VI. INDEMNITY
This agreement is made on the express condition that Owner and its
assigns shall be free from all inabilities, costs and claims for damages and/or
suits for or by reason of any nature or kind whatsoever arising as a result of
Operator's and/or its assigns ownership of the Subject Leases. Operator and/or
its assigns hereby covenant and agree to protect, indemnify and save harmless
Owner from all injuries, losses, damages, liabilities, clam, charges, damages to
property, expenses, fines, penalties, attorney's fees, costs, or contamination
or adverse affects on the environment arising from its and/or its assigns
ownership and operations under the Subject Leases.
VII. ACCESS TO DRILLING AREA AND DATA
At Owner's risk Owner or its agents shall at all times have access to
the derrick floor and logging units of any well or wells being drilled. Operator
is obligated to notify Owner by prepaid United States mail or by telephone Area
Code 318-232-9371 as to all operations on the Prospect Area, which shall include
by way of specification but not limitation,
<PAGE>
Cambridge Energy Corporation
May 27, 1997
Page 6
the permit and permit plat, the dates of commencing of drilling of wells, the
dates of operations, the dates of resumption of operations, a daily drilling
report to include daily and cumulative costs, a detailed report of production
(stated both in units produced and monetary sums received, said report to be
itemized on a monthly basis), tree copies of well drilling programs, logs, core
analyses, Micrologs, deviation surveys or other well surveys. Owner shall not be
liable for any costs relating to this data or copies thereof. Operator shall
give Owner forty-eight (48) hours verbal and written notice via FAX, of all
logging runs and Owner shall be furnished a field print of said log and any
other data requested if Owner is present.
VI. AGREEMENT BINDING ON ASSIGNS
The provisions of this agreement shall be binding on the parties
hereto, their heirs, executors, personal representatives, successors and
assigns. It is expressly agreed to and understood that no assignment, transfer
of interest or otherwise shall be made pursuant to this agreement, unless and
until, Operator binds its assignee(s) or transferee(s) completely and fully to
this agreement by specific reference and whereby they expressly agree to assume
the liabilities and obligations contained herein. This obligation to bind future
assignees or transferees shall be incumbent upon all future parties.
Additionally, Owner shall be furnished a tree copy of each and every transfer
executed after the date of this agreement at no cost.
If this letter correctly sets forth your understanding of our
agreement, please execute in the space provide below and return to the
undersigned one (1) full}, executed copy of this agreement along with your
certified check in the sum of Sixty Thousand and No/100 ($60,000.00) dollars.
Very truly yours,
PROVEN FUEL EXPLORATION, INC.
/s/ William Clay
----------------
William M. Clay
President
AGREED TO AND ACCEPTED
THIS 4 DAY OF June,1997.
CAMBRIDGE ENERGY CORPORATION
/s/ Perry West
- --------------
Perry West
President
<PAGE>
EXHIBIT "A"
Attached to and made a part of that certain Acquisition Agreementdated May 27,
1997, between Proven Fuel Exploration, Inc. and Cambridge Energy Corporation
applicable to the Houma Field Prospect, Terrebonne Parish, Louisiana.
All recording references are for the Conveyance Records of the Clerk of Court
for Terrebonne Parish, Louisiana.
1. Oil, Gas and Mineral Lease between Andrew M. Viguerie, et al, Lessor,
and Proven Fuel Exploration, Inc., Lessee, dated October 28, 1996 and recorded
at COB 1548 at Entry No. 994298.
2. Oil, Gas and Mineral Lease between Carroll Parr and Synde D. Parr,
Lessor, and Proven Fuel Exploration, Inc., Lessee, dated April 3, 1997 and
recorded at COB 1552 at Entry No. 995973.
3. Oil, Gas and Mineral Lease between Dorothy V. Beane, Lessor, and Proven
Fuel Exploration, Inc., Lessee, dated October 28, 1996 and recorded at COB 1554
at Entry No. 996651.
<PAGE>
PROVEN FUEL EXPLORATION INC.
Post Office Box 52552
LARAYETTE, LA 70505-2552
(318) 232-9371
June 9, 1997
Cambridge Energy, Corporation
Tara Place West, Suite 200
1604 West Pinhook Road
Lafayette, Louisiana 70508
ATTN: Mr. Perry West
Subject: Amendment to Acquisition Agreement
Houma Field Prospect, Terrebonne Parish, Louisiana
Dear Mr. West:
In accordance with your request to amend Article V of the subject agreement
pertaining to those leasehold and other interests acquired by either Owner
or Operator not described in and obtained subsequent to execution of the
subject agreement and the treatment of these subsequently acquired
interests, Proven Fuel Exploration. Inc.
("Owner") agrees to the following:
Wherein paragraph V appears in that certain Acquisition Agreement dated May
27, 1997, between Proven Fuel Exploration, Inc. and Cambridge Energy
Corporation, that paragraph V is hereby deleted in its entirety and the
following is inserted in lieu thereof, to wit:
"V. PROSPECT AREA AND AREA OF MUTUAL INTEREST
There is created hereby for this Prospect Area an Area of Mutual
Interest, hereinafter referred to as the %MI", which area is designated as
cross-hatched on Exhibit "B" attached hereto and made a part hereto. It is
understood that any lease, purchase, farmout, farmin or any other
exploration agreement acquired by either party within the AMI ("Leasehold
Interest") during the period in which the Subject Leases on Exhibit "A" are
in force and effect and for a period of six months thereafter shall be
subject to the terms hereto. Any Leasehold Interest acquired by Operator
during the term in said AMI shall be subject to the overriding royalty in
favor of Owner herein set forth. Should Owner acquire any Leasehold
Interest during the term in the AMI, then Owner shall tender in writing to
Operator said Leasehold Interest, retaining. (Continue on page 2)
<PAGE>
Cambridge Energy Corporation
June 9, 1997
Page 2 of 2
however, only the overriding royalty set forth herein. If Operator elects
to acquire the Leasehold Interest subject to said overriding royalty,
Operator shall notify Owner in writing within fifteen (15) days of receipt
of said tender and, thereafter. reimburse Owner for the actual third party
costs thereof, including bonus, brokerage, recordation and other normal
costs, if any, incurred in the acquisition of such Leasehold Interest. If
Operator elects not to acquire said Leasehold Interest, then Operator shall
notify Owner within fifteen (15 ) days after receipt of said tender and, in
such event, said Leasehold Interest shall be owned by Owner free of this
agreement. If Operator elects to acquire said Leasehold Interest, it shall
be assigned to Operator within thirty (30) days after recordation of the
lease or within thirty (30) days after Owner has received a recordable act
evidencing such acquisition. The overriding royalty referred to above in
favor of Owner shall be cost free and equal to difference between existing
leasehold burdens prior to acquisition and 72% of 8/8ths, but in no event
less than 3% of 8/8ths. Said assignment of overriding royalty interest
shall be due to Owner in recordable form within thirty (30) days of each
acquisition."
In all other respects the May 27, 1997 agreement remains
unchanged.
Please so indicate your agreement and understanding by affixing
your signature in the space provided below.
Very truly yours,
/s/ William M. Clay
-------------------
William M. Clay
President
Agreed to and accepted this 17th day
of June, 1997.
CAMBRIDGE ENERGY CORPORATION
/s/ Perry West
--------------
Perry West
President
<PAGE>
SPIRIT
ENERGY
New Name. Same Spirit.
A Business Unocal
April 30,1997
Mr. William M. Clay
Proven Fuel Exploration, Inc.
P. O. Box 52552
Lafayette, LA 70505-2552
SUBJECT:_______________________
TRADE NO. 511-96
FARMOUT AGREEMENT
DATED AUGUST 1, 1996, AS AMENDED
HOUMA FIELD
TERREBONNE PARISH, LOUISIANA
Gentlemen:
Reference is made to the subject Farmout Agreement, as amended, (the Agreement)
dated August 1, 1996, by and between Union Oil Company of California, (Farmor)
and Proven Fuel Exploration, Inc., (Farmee).
Pursuant to letters dated February 17, 1997, March 17, 1997 and April 21, 1997,
Farmee has requested an extension of time within which to commence operations
and a change to the Agreement regarding the excluded Big (3) No. 1 Zone.
Farmor hereby grants Farmee a one (1) time extension of time, until July 31,
1997, within which to commence its operations.
Notwithstanding anything to the contrary contained in section 4 of the
Agreement, Farmee shall have the right to make a completion in the Big (3) No. I
Zone, INSOFAR AND ONLY INSOFAR, such completion is limited to the interval as
seen between the electric log depths of 12,126 feet and 12,432 feet, (MD), as
seen in the Union Oil Company of California - Calvert & Todd Well No. 13, such
interval hereinafter referred to as the "Big (3) Interval". It is recognized by
Farmor and Farmee that such interval is within the Big (3) No. 1 Zone as defined
in Office of Conservation Order No. 141-X-2, effective July 23, 1996. In the
event Farmee completes the earning well in the Big (3) Interval, subject to all
terms and conditions of the Agreement, then the earning well shall be designated
as an Alternate Unit Well for the Big (3) No. 1 Zone RB SU A. All production
from such alternate unit well shall be subject to the Agreement. Farmee
recognizes that it shall not be intitled to any production or revenue from the
Big (3) No. I Zone RB SU A; Calvert & Todd Well No. 13 or substitute thereof.
4021-4023 Ambassador Caffery Parkway PO Box 39200 Lafayette, LA 70593-920
<PAGE>
Proven Fuel Exploration, Inc.
April 30, 1997
Page 2
It is being expressly understood and agreed that nothing in the Agreement,
except to the extent herein expressly provided, shall be deemed to have altered
or otherwise changed any of the terms or provisions in the Agreement.
The extension of time and conditions set forth heroin are conditioned upon
Farmee's acceptance of same by executing both copies of this letter and
returning: one (1) copy to the undersigned.
Sincerely,
UNION OIL COMPANY OF CALIFORNIA
/s/ Robert J. Sevin Jr.
-----------------------
Robert J. Sevin Jr.
Attorney-in-Fact
AGREED TO AND ACCEPTED THIS 5th
DAY OF May, 1997.
PROVEN FUEL EXPLORATION, INC.
/s/ William M. Clay
- -------------------
William M. Clay
President
<PAGE>
Unocal Energy Resources Division
Unocal Corporation
4021-4023 Ambassador Caffery Pkwy.
Lafayette, Louisiana 70803
P. O. Box 39200
Lafayette, Louisiana 70593-9200
Telephone (318) 295-6376
UNOCAL
August 1, 1996
Robert J. Sevin, Jr.
Land Manager
Louisiana/Gulf Business Unit
Mr. William M. Clay
Proven Fuel Exploration, Inc.
P. O. Box 52552
Lafayette, Louisiana 70505-2552
SUBJECT:_______________________
TRADE NO. 511-96
FARMOUT AGREEMENT
HOUMA FIELD
TERREBONNE PARISH, LOUISIANA
Gentlemen:
This letter, when executed by you in the space provided below, shall evidence
and constitute the Farmout Agreement (the Agreement) entered into by and between
Union Oil Company of California, hereinafter referred to as "Farmor", and Proven
Fuel Exploration, Inc., hereinafter referred to as "Farmee", concerning the
drilling by Farmee of a test well for oil and gas, the acquisition by Farmee
from Farmor of an interest in the below described oil, gas and mineral leases
owned by Farmor, and other matters as set forth herein.
1. DESCRIPTION OF LEASES AND LANDS SUBJECT TO THIS AGREEMENT
1.1 Subject Leases
Farmor is the owner of those certain oil, gas and mineral leases described
on Exhibit "A", attached hereto and made a part hereof, said leases being
hereinafter referred to as the "subject leases."
1.2 Farmout Acreage
The lands which are subject to this Agreement, herein referred to as the
"farmout acreage," are the lands covered by the subject leases, containing
approximately 170 net acres, as outlined in red on the plat attached hereto as
Exhibit "B" and made a pan hereof, located in the following Sections: Section
14, 15, 16, & 17, Township 17 South, Range 17 East, Terrebonne Parish,
Louisiana.
2. TEST WELL
On or before January 27, 1997, Farmee shall commence or cause to be
commenced the actual drilling (spudding in) of a test well for oil and gas at a
legal location of Farmee's choice in
<PAGE>
PROVEN FUEL EXPLORATION, INC.
August 1, 1996
Page 2
Section 16, Township 17 South, Range 17 East, Terrebonne Parish, Louisiana.
Farmee thereafter agrees to continuously prosecute the drilling of the test wen
at Farmee's sole cost, risk and expense, with due diligence and in a good and
workmanlike manner and in compliance with all applicable provisions of the
subject leases and with applicable roles and regulations of any governmental
body having jurisdiction thereover. Such test shall be drilled to a depth of
12,450' feet TVD beneath the surface of the earth or a depth sufficient to test
the Krumbhaar Sand whichever is the lesser depth ("Objective Depth"). For the
purposes of this Agreement, the Krumbhaar Sand is defined as the stratigraphic
equivalent of the zone found between the depths of 12,040 feet and 12,442 feet
(electric log measurement) in the Union Oil Company California - Calvert & Todd
Well No. 6, located in Section 16, Township 17 South, Range East, Terrebonne
Parish, Louisiana.
3. SUBSTITUTE WELL
Should Farmee fail to reach the Objective Depth in the test well due to
encountering igneous reck, domal material, heaving shale, salt water, salt or
other impenetrable substance, or should Farmee suffer any adverse condition
(mechanical or otherwise) in drilling the test well, which substance or
condition cannot be overcome at a reasonable cost by means considered reasonable
or appropriate in the industry, then Farmee shall have the right and option, at
any time within one hundred twenty (120) days following the date the drilling
rig is released from the test well, to commence or cause to be commenced the
actual drilling (spudding in) of a substitute well in lieu of the test well. If
such substitute well is drilled in the manner and to the depth herein required
for the drilling of the test well, such well shall then be considered as though
it were the test well for all purposes of this Agreement. Should such substitute
well fail to reach the Objective Depth due to one of the causes set forth above,
Farmee shall have the right and option to drill additional substitute wells,
within the time and in the manner specified above with respect to the first
substitute well, in an effort to reach the Objective Depth.
4. RIGHTS EARNED UPON COMPLETION OF EARNING WELL
4.1 Acreage Earned
In the event the test well (or substitute well) is drilled to the Objective
Depth and is successfully completed as a well capable of producing oil or gas in
paying quantities (herein referred to as the "earning well"), Farmee shall earn
an assignment hereunder. Farmee agrees to immediately file an application with
the Commissioner of Conservation requesting designation of the earning well as a
substitute unit well for the Krumbhaar Zone RB SU A, established by Commissioner
of Conservation Order No. 141-B-5, effective April 19, 1994. Said unit shall
serve to define the geographical limit of the rights earned by Farmee.
4.2 Depths and Interest Earned
Assuming that Farmee has otherwise complied with all of the terms and
conditions of this Agreement, Farmor shall, upon receipt of written request,
execute in favor of Farmee, without warranty of title, either express or
implied, and subject to the reservations, limitations and conditions hereinafter
set forth, an assignment of one hundred (100%) percent of the right, title and
interest of
<PAGE>
PROVEN FUEL EXPLORATION, INC.
August 1, 1996
Page 3
only insofar as the subject leases covers depths from the surface of the earth
to the base of the Krumbhaar Zone, as defined in Commissioner of Conservation
Order No. 141-B-5, plus 100 feet, or to the stratigraphic equivalent of the
depth at which the base of the deepest producing sand is encountered, whichever
of said depths is the lesser. The following zones and/or sands shall be less and
excepted from this Agreement and Farmee can earn no interest therein:
a) The Big (3) No. 1 Zone defined as that gas and condensate beating sand
encountered between the electric log depths of 11,428 feet and 12,432 feet
(measured depth) in the Union Oil Company of California - Calvert & Todd Well
No. 13, the surface of which is located in Section 18, Township 17 South, Range
17 East, Terrebonne Parish, Louisiana;
b) Tex (W) 6 Zone defined as that gas and condensate bearing sand
encountered between the electric log depths of 11,034 feet and 11,146 feet
(measured depth) in the Union Oil Company of California - Calvert & Todd Well
13, the surface of which located in Section 18, Township 17 South, Range 17
East, Terrebonne Parish, Louisiana;
c) 8,550' Sand defined as that gas and condensate bearing sand encountered
between the electric log depths of 8,673 feet and 8,884 feet (measured depth) in
the Union Oil Company of California - Calvert & Todd Well No. 13 the surface of
which is located in Section 18, Township 17 South, Range 17 East, Terrebonne
Parish, Louisiana;
d) 8,750' Sand defined as that gas and condense bearing sand encountered
between the electric log depths of 8,944 feet and 9,100 feet (measured depth) in
the Union Oil Company of California - Calvert & Todd Well No. 13 the surface of
which is located in Section 18, Township 17 South, Range 17 East, Terrebonne
Parish, Louisiana;
e) 9,000' Sand defined as that gas and condensate bearing sand encountered
between the electric log depths of 9,236 feet and 9318 feet (measured depth) in
the Union Oil Company of California - Calvert & Todd Well No. 13 the surface of
which is located in Section 18, Township 17 South, Range 17 East, Terrebonne
Parish, Louisiana.
4.3 Rights to Production Prior to Payout
In the event Farmee earns the assignment provided for above, Farmor shall
reserve and be entitled to receive an overriding royalty interest equal to the
difference between twenty-five (25%) percent and present lease burdens. Such
overriding royalty interest shall be free of all costs, but shall be subject to
and bear its proportionate part of all severance, production and other taxes
applicable thereto. If the subject leases cover less than the full mineral
interest in the assigned acreage and depths, or if Farmor's ownership of the
subject leases is less than one hundred (100%) percent in the acreage and depths
being assigned, said overriding royalty interest shall be proportionately
reduced.
4.4 Form of Assignment
Any assignment earned by Farmee shall be executed on the form of
assignment attached hereto as Exhibit "C" and made a part of this Agreement.
<PAGE>
PROVEN FUEL EXPLORATION, INC.
August 1, 1996
Page 4
4.5 Override Applies to Extension and Renewal of Subject Leases
The overriding royalty to be reserved by Farmor in the event Farmee earns
an assignment shall automatically attach to and encumber any renewal or
extension of the subject leases or any new leases covering lands affected by the
assignment taken within one (1) year of the termination of the subject leases in
question as to the interest acquired by Farmee in said renewal, extension, or
new leases.
4.6 Override Applicable to Test Production
The test production sales income from the earning well shall be subject to
Farmor's overriding royalty interest as hereinabove provided, and Farmee shall
pay or cause to be paid to Farmor that portion of the test production sales
income which is attributable to Farmor's overriding royalty interest.
5. RIGHTS UPON PAYOUT
5.1 Farmor's Election to Retain Override or Convert to a Working Interest
Upon payout of the earning well, as hereinafter defined, Farmor shall: (a)
retain its reserved overriding royalty interest equal to the difference between
twenty-live (25%) percent and present lease burdens or,
5.2 Payout Defined
As used in this Agreement, the term "payout" shall mean that point in time
when Farmee has recovered the following costs: (i) the actual costs and expenses
incurred through the Christmas tree by Farmee in drilling, testing, completing
and equipping the earning well, and (ii) all costs and expenses incurred by
Farmee in operating such well during the time of recovery of such costs and
expenses. For the purposes of determining the payout of the initial earning well
drilled pursuant to this Agreement, the cost and expenses to be recovered for
surface equipment, i.e. pipelines, heater-treaters, compressors, separators,
tanks, etc., shall be limited to only such equipment that is designed for,
installed and used by, the initial test well. Any additional costs and expenses
incurred for surface equipment installed as a result of a subsequent well or
wells drilled, whether or not pursuant to this Agreement, shall not be
considered part of those costs and expenses recovered for determining the payout
to the initial earning well. Such costs and expenses shall be determined in
accordance with the 1984 Onshore COPAS Accounting Procedure attached hereto as
Exhibit "D" and made a part hereof for all purposes. The costs and expenses
referred to above shall be recovered from the proceeds of the production from
the earning well remaining after all royalties, present lease burdens, including
Farmor's overriding royalty herein created, have been paid, and after all ad
valorem, severance, gross production and any other taxes levied on production
have been paid.
<PAGE>
PROVEN FUEL EXPLORATION, INC.
August 1, 1996
Page 5
5.3 Reporting to Farmor Concerning Revenues and Expenses of Earning Well
Farmee shall furnish Farmor with an itemized statement of the costs of
drilling, testing, completing and equipping the earning well, which statement
shall be furnished promptly, and in any event, within sixty (60) days after
completion of such well. Thereafter, on or before the last day of each month,
Farmee shall furnish Farmor with an itemized statement of the production and
income derived by Farmee from the earning well and the costs and expenses
incurred by Farmee in connection with its operation for the preceding month.
Farmor shall have access at all reasonable times to the books and accounts
pertaining to the earning well as further set forth in Exhibit "C" whether or
not Farmor converts its overriding royalty interest.
5.4 Time Period Dufinq Which Farmor's Election Must Be Made
At such time as payout occurs with respect to the earning well, Farmee
shall give Farmor written notice thereof, by certified mail, and Farmor shall
have thirty (30) days after receipt of such notice within which to exercise the
option rights set forth hereinabove. The failure of Farmor to exercise such
option rights within the thirty (30) day period allowed therefor shall
constitute an election to escalate it reserved overriding royalty interest as
provide for in Section 5.1 above.
5.5 Additional Assi~ymaent Upon Payout if Necessary
At such time as payout occurs with respect to the earning well and an
election is made by Farmor as set forth hereinabove, Farmor and Farmee agree to
execute and deliver each to the other such instrument or instruments in
recordable form as are necessary or appropriate to set forth the exact interests
then owned by the parties hereto. The election to receive a working interest
ownership or to receive an increased overriding royalty shall be effective as of
7:00 a.m. on the first day following the date on which payout has occurred.
6. OPERATING AGREEMENT
In the event Farmor elects to convert a portion of its overriding royalty
and receive a working interest in the earned acreage, Farmor and Farmee shall
promptly eater into a mutually acceptable operating agreement which shall cover
all future operations on the drilling and production unit or units formed for
the earning well. Such operating agreement shall be based upon the Bath-Gram La.
C.U.-1 (1964) operating agreement form attached hereto as Exhibit "E" and made a
part hereof for all purposes. Such operating agreement shall specify use of the
1984 Onshore COPAS Accounting Procedure attached hereto as Exhibit "D", with the
overhead rates adjusted to the effective date of said operating agreement. Such
operating agreement shall provide for a three hundred (300%) percent penalty on
non-consent operations, Said operating agreement shall also give Farmor a
preferential fight to purchase all oil, gas and other hydrocarbons produced from
or attributable to the unit, on the same terms and conditions as provided in
Article 8 below.
If Farmor elects to receive a working interest, and prior to execution of
the operating agreement, Farmee sells the share of production belonging to
Farmor, Farmee shall make a reasonable monthly estimate of such share of
production and the net income attributable thereto and promptly remit same to
Farmor, subject to necessary adjustments after execution of the operating
agreement.
<PAGE>
PROVEN FUEL EXPLORATION, INC.
August 1, 1996
Page 6
In the event of conflict between the terms of this Agreement and the terms
of any such operating agreement and accounting procedure, the terms of this
Agreement shall control.
7. TERMINATION OF RIGHTS EARNED
In the event Farmee earns the assignment provided for above, and in the
further event that production attributable to the portion of the farmout acreage
covered by such assignment should cease, then Farmee shall promptly notify
Farmor of such cessation and, with such notice, shall advise Farmor whether or
not Farmee intends to attempt to reestablish production which will be
attributable to the farmout acreage previously assigned to Farmee. If Farmee
advises Farmor that it does not intend to attempt the re-establishment of such
production, or if Farmee advises Farmor that it intends to attempt the
re-establishment of such production but fails to commence additional drilling or
reworking operations within forty-five (45) days after the cessation of
production, then the leasehold estate assigned by Farmor to Farmee hereunder
shall automatically revert to Farmor and, upon request by Farmor, Farmee shall
evidence such reversion by assignment in recordable form. Should Farmee commence
such additional drilling or reworking operations within said forty-five (45) day
period, and if such operations fail to result in production attributable to the
farmout acre, age, then the leasehold estate assigned by Farmor to Farmee
hereunder shall automatically revert to Farmor at such time as said additional
drilling or reworking operations are finally discontinued. Should the leasehold
estate assigned by Farmor to Farmee hereunder revert to Farmor as provided in
this paragraph and/or should Farmee hereafter reassign such leasehold estate to
Farmor as hereinabove provided, such reversion and assignment shall be free and
clear of all liens, claims and encumbrances against such leasehold estate
created by Farmee and shall be free and clear of any overriding royalties,
production payments, and other similar burdens other than those burdens
presently burdening Assignor's leasehold interest at the time Farmor assigned
such leasehold interest to Farmee. It is further understood and agreed that the
automatic reversion of rights to Farmor shall not relieve Farmee of liability
for obligations assumed hereunder which accrued prior to the reversion of rights
to Farmor, including, but not limited to, the obligation to restore the surface
of the leased premises and the obligation to plug and abandon any well drilled
by Farmee. The provisions for reversion of the leasehold estate assigned by
Farmor to Farmee as contained in this paragraph shall continue to apply
regardless of the number of times the production attributable to such leasehold
estate may cease and thereafter be reestablished by Farmee. The obligation of
Farmee to notify Farmor immediately at any time such cessation may occur, in
order that Farmor may take such action as it deems advisable to protect its
reversionary leasehold interest, is a material consideration for this Agreement.
8. PREFERENTIAL RIGHT TO PURCHASE PRODUCTION
Farmor reserves the right to purchase currently at a price not less than
the average posted field price as produced, all oil and condensate produced and
saved from or attributable to the farmout acreage, such right to be exercisable
at any time and from time to time during the existence of this Agreement.
Farmor also reserves the preferential right and option, subject to the
negotiation of a mutually agreeable contract, to purchase all gas and casinghead
gas produced and saved from the farmout
<PAGE>
PROVEN FUEL EXPLORATION, INC.
August 1, 1996
Page 7
acreage, or which is attributable thereto; provided, however, that in the event
Farmee and Farmor are unable to agree upon such contract and Farmee agrees to
enter into a contract with a third party for the sale of such gas or casinghead
gas, Farmee shall notify Farmor that there exists a purchaser ready, willing and
able to enter into such contract with Farmee (giving full details and full
disclosure concerning any such contract), and Farmor shall have a period of
thirty (30) days thereafter within which to exercise its option to purchase such
gas or casinghead gas on the same terms offered to Farmee by such third party.
In the event Farmor shall fail to exercise its option under the immediately
preceding paragraph within the time specified, then Farmee shall be flee to sell
its gas or casinghead gas produced and saved from the farmout acreage or
attributable thereto to such third party on the exact terms (but not otherwise)
as set forth in the notice to Farmor, and Farmor shall not be entitled to
exercise its purchase option during the term of any such contract entered into
between Farmee and such third party.
In this regard, however, Farmee expressly agrees that, prior to the time of
payout of the earning well, any sale or disposition by Fannee, its successors
and assigns, of gas produced from the earning well which is attributable to the
farmout acreage shall be made subject to Farmor's right to receive upon payout
its twenty-five (25%) percent working interest in the farmout acreage flee and
clear of such contract (so that, in the event such leasehold interest is
received by Farmor as provided above, the gas produced from the earning well
which is attributable to the farmout acreage shall be subject to Farmor's
separate disposition and control).
9. REPORTING AND SHARING OF INFORMATION REQUIREMENTS
9.1 Plat, Summary of Evaluation Proqram, Spud Date
Farmee shall furnish Farmor with a surveyor's plat showing the location and
ground elevation of each well drilled pursuant to this Agreement, together with
a brief summary of the logging, coring, casing design and testing program and
any other evaluation program proposed for such well. Farmee shall notify Farmor
of the date of commencement of actual drilling promptly after such well has been
spudded.
9.2 Titles and Curative Materials
Copies of any title opinions, division order opinions and/or curative
materials obtained by Farmee and which affect Farmor's leases shall be furnished
to Farmor free of charge upon written request by Farmor.
9.3 Drilling Information and Access
During the conduct of operations on each well drilled pursuant to this
Agreement, Farmee shall do the following:
(a) Permit Farmor's authorized representatives to have full and complete
access to the derrick floor at any reasonable time and to observe all operations
at Farmor's own risk and expense.
PROVEN FUEL EXPLORATION, INC.
August 1, 1996
Page 8
(b) Furnish daily to Farmer at the office indicated in Paragraph 20 below a
drilling report covering the preceding 24 hours, showing work done, depth
drilled, formations penetrated and any shows of oil or gas encountered.
(c) Do such coring as a reasonably prudent operator would do and adequately
test all formations having shows of oil or gas as revealed in drilling, coring
or by electrical or mud logging surveys.
(d) Save samples of all cuttings and cores in bags marked at the depth from
which they came and deliver them to Farmor at the well.
(e) Run or make or cause to be run or made an induction electrical survey,
a sonic and/or microlog survey, and at the option of Farmee, a continuous
dipmeter survey upon completion of drilling and prior to running and setting
casing in any well.
(f) Notify Farmor in sufficient time to have a representative present when
Farmee plans to run an electric log, to core or make any drillstem or production
test.
(g) Furnish Farmor with two (2) copies of core analyses, results of
drillstem tests and field prints of any and all logs or surveys which may be run
or made during the drilling of any well.
9.4 Geological and GeophVsieal Information
Upon completion of each well drilled pursuant to this Agreement or as soon
as each item is available, whichever first occurs, Farmee shall furnish Farmor
the following information as to each such well at Farmee's sole cost and
expense:
(a) One (1) sepia print and two (2) copies of a composite electric log
survey of the complete interval of the hole from the bottom of the surface
casing to the well's greatest depth, and two (2) copies of any and all other
logs and surveys which are made:
(b) Two (2) copies of all core records and drillstem or production tests
made;
(c) Satisfactory evidence of the depth drilled before abandoning or
plugging such well;
(d) One (I) copy of all forms filed with any governmental authority or
agency, including, but not limited to, all reports filed with the Office of
Conservation;
(e) The official name of the well and unit and the name of the field in
which the well is located; and,
(f) The name and address of thc designated operator.
(g) One (1) Schlumberger #6101 customer tape, or other logging company
equivalent, of all digitized logs.
<PAGE>
PROVEN FUEL EXPLORATION, INC.
August 1, 1996
Page 9
10. INDEMNITY
The test well (and any substitute well) shall be drilled at Farmee's sole
risk, con and expense, and Farmee shall protect, indemnify and hold Farmor
harmless from all losses, costs, claim, expenses, damages and liabilities
arising out of or connected with Farmee's performance, or failure to perform,
under this Agreement, or the acts of or failure tom by Farmee's agents,
employees, contractors and subcontractors. Farmee shall not, however, be liable
in damages to Farmor for failure to commence said test well or to drill it to
the required Objective Depth, and any such failure on Farmee's part shall only
result in the loss to Farmee of the fight to receive an assignment hereunder.
11. INSURANCE
I1.1 Required Insurance Coverage
At all times while Farmee has the right to earn an assignment of interest
hereunder or is conducting operations on the farmout acreage or acreage pooled
therewith, Farmee shall maintain, at its sole cost, the following insurance
coverage for its operations:
(a) Worker's Compensation Insurance in accordance with the laws of the
state(s) in which operations are covered under this Agreement.
(b) Employer's Liability Insurance with a minimum limit ors 1,000,000 per
occurrence.
(c) Comprehensive General Liability Insurance with a limits liability of
$1,000,000 and a combined single limit per occurrence of $5,000,000 in the
aggregate.
(d) Comprehensive Automobile Liability Insurance covering owned, non-owned
and hired automobiles with a combined single limit of $1,000,000 per occurrence.
(e) Umbrella Liability Insurance with a combined single limit per
occurrence of $1,000,000.
Farmee shall have at its option, at all times, the right to self insure for
any or all of the above coverages in accordance with the laws of the State of
Louisiana.
11.2 Proof of Coverage
Prior to the commencement of operations hereunder, Farmee shall furnish
Farmor, at Farmor's written request, one or more certificates signed by the
insurance carrier or carriers, or in the case of self-insurance, other written
evidence that Farmee has qualified as a self-insurer in accordance with the laws
of the State of Louisiana, showing to Farmor's satisfaction that the required
insurance coverage described above is then in force, and stating that such
coverage shall not be canceled or materially altered without at least 10 days
advance written notice to Farmor. Such cancellation or material alteration, if
not accompanied by new insurance coverage satisfactory to Farmor, shall
constitute a default by Farmee giving Farmor the option of terminating this
Agreement. Each certificate shall also contain a waiver by the insurance carrier
of a right to be subrogated to the rights of any claimant against Farmor or
Farmor's employees and agents,
<PAGE>
PROVEN FUEL EXPLORATION, INC.
August I, 1996
Page 10
except that the carrier shall be subrogated to the rights of Farmee
against Farmor with respect to any risk expressly assumed by Farmor hereunder.
12. LEASE OBLIGATIONS
12.1 Payments by Farmee
Except as otherwise provided heroin, Farmee shall, at its sole cost and
risk, comply with all the express and implied covenants and other obligations of
the subject leases insofar as the farmout acreage is concerned, including the
payment of royalties, shut-in payments, delay rentals and Pugh clause rentals.
All payments and/or funds inuring or accruing to Farmor and to Farmor's lessors
shall be timely disbursed regardless of whether division orders are executed and
regardless of pending problems not directly associated with the subject leases.
12.2 Payments by Farmor
Farmor shall have the right, but not the obligation, to pay rentals,
royalties or other payments which may be due under the subject leases, included
in the farmout acreage, and Farmee agrees to reimburse Farmor for the full
amount of such payments which Farmor is not obligated to bear hereunder plus
interest calculated at the legal rote from the date of payment by Farmor to the
date of reimbursement by Farmee.
12.3 Renewal Of Leases
Farmor shall be under no obligation to renew the subject leases. If the
leases to be assigned hereunder will expire before the terms of this Agreement
have been met and an assignment earned, Farmee shall, more than forty-five (45)
days before the expiration of said leases, either: (a) renew or extend same for
Farmor's benefit and in Farmor's name, but at the sole expense of Farmee; or,
(b) commence drilling operations thereon sufficient to preserve the subject
leases. Failure of Farmee to accomplish either (a) or (b) more than thirty (30)
days before the expiration of the subject leases will result in the forfeiture
by Farmee of its fight to earn an assignment of the subject leases.
13. RELATIONSHIP OF PARTIES
This Agreement is not intended to create, and nothing herein contained
shall be contained as creating, a partnership, joint venture or other
relationship by which one party is liable for the obligations or act, either of
omission or commission, of the other party. Each of the parties hereto elects
not to be treated as a partnership for any purpose under the Internal Revenue
Cede of 1986 and, specifically, each of the parties hereto elects, as authorized
by Section 761(a) of the Internal Revenue Code of 1986, that operations covered
by this Agreement be excluded from all of the provisions of Subchapter K of
Chapter 1 of Subtitle A of the Internal Revenue Cede of 1986, as amended, and
all applicable regulations thereunder.
Also, each party hereto elects to be excluded from the application of all
provisions of Subpart D of Part II, Chapter I, Title 47, Louisiana Revised
Statutes of 1950, as amended, as permitted and authorized by Section 220.3 of
said Revised Statutes and the regulations promulgated thereunder.
<PAGE>
PROVEN FUEL EXPLORATION, INC.
August 1, 1996
Page 11
In conducting its operations hereunder, Farmee shall not be acting as
Farmor's agent, but rather as an independent contractor, and Farmor shall not be
liable in any way for any debts, demands or claims incurred by or against Farmee
in connection with performance of this Agreement.
14. CONFIDENTIALITY
Without Farmor's prior written consent, Farmee shall not divulge
information obtained from operations hereunder to any party other than Farmor,
any party owning an interest in the well, and the appropriate governmental
authority.
15. ABANDONMENT AND SURFACE RESTORATION
Farmee agrees that it shall, at its sole cost and expense, plug and abandon
all wells drilled pursuant to this Agreement in accordance with all applicable
mica and regulations of any governmental body having jurisdiction thereover. In
addition, Farmee shall, at its sole expense, restore the leased premises to
their former state as nearly as practical and settle and dispose of all claims
for damages arising from or in connection with the drilling of said well,
including, hut not limited to, damages to the surface of the land, trees and
growing crops, and loss of soil fertility, and Farmee shall furnish satisfactory
evidence to Farmor that the foregoing has been accomplished. Notwithstanding the
above, if Farmor elects to convert to a working interest after payout of the
earning well, costs of abandonment and surface restoration associated with the
earning well and any wells drilled subsequently shall be borne by the parties in
proportion to their working interest ownership at the time the obligations
accrue.
16. FARMOR'S RIGHT TO ASSUME OPERATORSHIP
If, at any depth and at any time, Farmee determines that any test well or
any substitute thereof, that has been drilled on the farmout acreage, has no
further utility and wishes to permanently plug and abandon same, then formal
notice of such shall immediately be furnished Farmor. Upon receipt of this
notice, Farmor shall have forty-eight (48) hours, including weekends and
holidays, in which to advise Farmee of whether or not it wishes to assume
operatorship of the test well. In the event Farmor assumes operatorship, Farmer
shall execute any appropriate assignment and all further well costs, including
plugging and abandonment costs, shall be the responsibility of Farmor. If Farmor
does not respond to the Farmee's notice within the allotted forty-eight (48)
hour period, then Farmee shall proceed with plugging and abandoning the test
well in accordance with the appropriate provisions of this Agreement.
17. CONSENT TO ASSIGN
Rights granted to Farmee heroin my not be assigned or transferred in whole
or in part without Farmor's prior written consent, which consent win not be
unreasonably withheld by Farmor. Any assignment earned by Farmee hereunder shall
similarly provide that Farmee's interest in the farmout acreage may not be
assigned or transferred in whole or in part without Farmor's prior written
consent. In the event Farmor gives its consent to an assignment or transfer by
Farmee to
<PAGE>
PROVEN FUEL EXPLORATION, INC.
August 1, 1996
Page 12
a third party, Farmee agrees to provide Farmor with a recorded copy of said
assignment. In such assignment, Farmee shall require its assignee or transferee
to expressly assume Farmee's obligations to Farmor as contained in this
Agreement and in any assignment earned by Farmee pursuant hereto to the extent
of the interest acquired by Farmee's transferee or assignee.
18. REFORMATION OF UNITS
Farmee and Farmor agree that they will not use any data obtained by virtue
of this Agreement in order to attempt to reform any existing units located
partially or wholly within the farmout acreage, or take any action that would
serve to diminish Farmor or Farmee's present interest in said units, unless
mutually agreed to in writing otherwise.
19. NOTICE PROVISIONS
All geological reports, information and notices from Farmee to Farmor
as to coring, running of logs and similar information shall be made to:
Union Oil Company of California
P. O. Box 39200
Lafayette, LA 70593-9200
4021 Ambassador Caffery Parkway
Lafayette, LA 70503
Attn: Mr. Chuck Cox
Business Phone: 3 18-295-6280
Fax 318-295-6621
All other correspondence, such as that relating to the terms of the
trade, shall be made to:
Union Oil Company of California
P. O. Box 39200
Lafayette, LA 70593-9200
4021 Ambassador Caffery Parkway
Lafayette, LA 70503
Attn: Mr. Robert B. Sevin
Business Phone: 318 -295 -6376
Fax: 3 18-295-6723
<PAGE>
PROVEN FUEL EXPLORATION, INC.
August 1, 1996
Page 13
All notices, reports, correspondence, etc. from Farmor to Farmee shall be
made to:
Mr. William M. Clay
Proven Fuel Exploration, Inc.
P. O. Box 58552
Lafayette, LA 70505-2552
Business Phone: 318-232-9371
Fax: 318-233-5759
This Agreement is prepared for execution in duplicate, and each copy shall be
treated as an original. If the foregoing correctly sets forth your understanding
of our agreement, please so indicate by signing both copies of this letter in
the space provided below and returning one (1) copy to Farmee within twenty (20)
days after the date of your receipt, failing in which this Agreement shall be
null and void, at Farmee's option.
Yours very truly,
UNION OIL COMPANY OF CALIFORNIA
/s/ Robert J. Sevin, Jr.
------------------------
Robert J. Sevin, Jr.
Attorney-in-Fact
ACCEPTED AND AGREED TO THIS 22
day of August ,1996.
PROVEN FUEL EXPLORATION, INC.
/s/ William M. Clay
- -------------------
William M. Clay
President
ItsRJS:jmc
JA:PROVENFO.DOC
August 1, 1996
<PAGE>
PROVEN FUEL EXPLORATION, INC.
August I, 1996
Page 14
LIST OF EXHIBITS
Exhibit "A" Schedule of Leases
Exhibit "B" Description and/or sketch of farmout acreage
Exhibit "C" Copy of form of assignment
Exhibit "D" Accounting Procedure (COPAS)
Exhibit "E" Joint Operating Agreement
<PAGE>
Unocal Energy Resources Division
Unocal Corporation
4021-4023 Ambassador Caller/Pkwy.
Lafayette, Louisiana 70503
P. O. Box 39200
Lafayette, Louisiana 70593-9200
Telephone (318) 295-6376
UNOCAL
October 8, 1996
Robed J. Sevin, Jr.
Land Manager
Louisiana Gulf Business Unit
Mr. William M. Clay
Proven Fuel Exploration, Inc.
P. O. Box 52552
Lafayette, LA 70505-2552
SUBJECT:________________________
TRADE NO. 511-96
FARMOUT AGREEMENT
HOUMA FIELD
TERREBONNE PARISH, LOUISIANA
Gentlemen:
This letter is written in connection with that certain Farmout Agreement dated
August 1, 1996, (the Agreement), by and between Union Oil Company of California
(Farmor) and Proven Fuel Exploration, Inc. (Farmee).
Pursuant to Farmee's letter dated October 3, 1996, Farmee has requested certain
modifications to paragraph's 4.1 and 18 of the Agreement.
Paragraph 4.1 shall be amended by adding the following language to the end of
said paragraph: "In the event the Krumbhaar Zone RB SU A is dissolved pursuant
to Statewide Order 29-L-2, and thereafter Farmee drills and completes the test
well as provided for herein, then Farmee shall establish a new Commissioner of
Conservation unit for such well. Such unit shall then serve to define the
geographical limit of the rights earned by Farmee."
Paragraph 18 shall be amended by adding the following language to the end of
said paragraph: "Notwithstanding anything herein to the contrary, Farmee shall
have the right, but not the obligation, to dissolve the Krumbhaar Zone RB SU A,
established by Commissioner of Conservation Order No. 141-B-5, effective April
19, 1994. In the event said unit is dissolved and thereafter the test well is
drilled and completed as a well capable of producing oil or gas in paying
quantities then Farmee shall, within thirty (30) days. commence unitization
proceedings in order to establish a unit for said well as provided for in
paragraph 4.1 above."
<PAGE>
Proven Fuel Exploration, Inc.
October 8, 1996
Page 2
It is being expressly understood that nothing in the Agreement, except to the
extent heroin expressly provided, shall be deemed to have altered or otherwise
changed any of the terms or provisions therein.
Farmor's modifications as set forth herein are conditioned upon Farmee's
acceptance of the terms of this letter by executing both copies and returning
one (1) copy to the undersigned.
Sincerely,
UNION OIL COMPANY OF CALIFORNIA
/s/ Robert J. Sevin, Jr.
------------------------
Robert J. Sevin, Jr.
Attorney-in-Fact
ACCEPTED AND AGREED TO THIS 14
DAY OF October , 1996.
PROVEN FUEL EXPLORATION, INC.
/s/ William M. Clay
- -------------------
William M. Clay
President
JA: PROVNFO2.DOC
<PAGE>
<TABLE>
EXHITI"A"
Attached to and made a part of that certain Farmout Agreement dated
August 1, 1996, by and between Union Oil Company of California,
as Farmor, and Proven Fuel Exploration, Inc., as Farmee.
<CAPTION>
STATE OF LOUISIANA
PARISH OF TERREBONNE
<S> <C> <C> <C> <C> <C>
Lessor Lessee Date Book EntryNo. Union Lease No.
- -------------------------------------------------------------------------------------------------------------------------------
Robert E. Calvert, et al Robert B. Prentice 02-01-45 186 108417 56259
Lee P. Lottinger Robert B. Prentice 10-28-48 166 78798 69879
Madison L. Funderburk Robert B. Prentice 03-09-49 166 79696 69880
Allen J. Ellender Robert B. Prentice 03-23-49 167 80077 1020837
Harold A. Todd Robert B. Prentice 05-18-49 168 82422 69882
Helen T. Hinchman Robert B. Prentice 05-18-49 168 82421 69883
Robert E. Calvert Robert B. Prentice 05-18-49 168 81365 69884
Allen I. Ellender Robert B. Prentice 01-28-50 172 87567 69885
Wen Chuan Chen Union Oil Company of California 03-25-94 1414 935653 1020129
Koch Gateway Pipeline Company Union Oil Company of California 03-25-94 1420 938415 1020200
T. L. C. Crewboats, Inc. Union Oil Company of California 01-19-95 1451 950932 1021061
</TABLE>
<PAGE>
EXHIBIT "C"
Attached and made a part of that certain Farmout Agreement dated August 1,1996
by and between Union Oil Company of California, as Farmor and
Proven Fuel Exploration, Inc., as Farmee.
PARTIAL ASSIGNMENT OF OIL AND GAS LEASES
STATE OF LOUISIANA
PARISH OF TERREBONNE
This agreement made and entered into this date by and between:
UNION OIL COMPANY OF CALIFORNIA, a California corporation, whose address is
4021-4023 Ambassador Caffrey Pkwy., P. O. Box 39200, Lafayette, Louisiana
70593-9200, hereinafter referred to as "Assignor", and
PROVEN FUEL EXPLORATION, INC, a Louisiana Corporation, whose address is P.
O. Box 52552, Lafayette, Louisiana 70505-2552, hereinafter referred to as
"Assignee".
WITNESSETH: That,
WHEREAS, Assignee has earned certain rights in those oil and gas leases
(the "subject leases") set forth on Exhibit "A", attached hereto and made a part
hereof,
NOW, THEREFORE, for and in consideration of the sum of Ten ($10.00) Dollars
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Assignor does hereby grant, transfer, and assign unto
Assignee all of Assignor's right, title and interest in the subject leases, and
property appurtenant thereto, INSOFAR AND ONLY INSOFAR as the leases contribute
acreage to the Krumbhaar Zone, RB SU A, established by Office of Conservation
Order No. 141-B-5, effective April 19, 1994, Houma Field, Terrebonne Parish,
Louisiana, and INSOFAR AND ONLY INSOFAR as the subject leases cover and affect
those horizons and depths underlying the geographic confines of said unit from
the surface of the earth to the base of the Krumbhaar Zone being defined by
Conservation Order 141-B-5 and encountered between the depths of 12,040' and
12,442' (electrical log measurement) in the Union Oil Company of California -
Calvert & Todd Well No. 6, or its stratigraphic equivalent, plus 100' feet.
It is expressly understood and agreed that this assignment is granted
subject to the following terms, conditions, reservations and limitations:
1. This assignment is subject to the terms and conditions contained in that
certain farmout agreement dated August 1, 1996, by and between Union Oil Company
of California and Proven Fuel Exploration, Inc. and such agreement is
incorporated herein by reference with the same effect as if copied in full
herein.
<PAGE>
2. Until payout (as defined in the Farmout of the earning well, Assignor
hereby reserves, and Assignee promises to pay Assignor, an overriding royalty
interest equal to the difference between twenty-five (25%) percent and present
lease burdens of record (including the lessor's royalty, overriding royalties
and other payments out of production which presently burden the Assignor's
leasehold interest being herein assigned), free from all costs except taxes,
said overriding royalty interest to be applied to all oil, gas and other liquid
or gaseous hydrocarbon minerals produced and saved from or attributable to the
subject leases, including test production. If the subject leases cover less than
the full mineral interest in the assigned acreage or if Assignor's ownership of
the subject leases prior to this assignment is less than 100%, said overriding
royalty interest shall be proportionately reduced. Assignor may require that
Assignee receive and market Assignor's overriding royalty share of the
production along with and for the same prices as Assignee is receiving for its
share of the production. Assignee agrees that all payments and/or funds inuring
or accruing to Assignor under the terms of the Farmout and this assignment and
to Assignor's lessors under the terms of the subject leases shall be timely
disbursed regardless of whether division orders are executed and regardless of
pending problems not directly associated with the subject leases.
3. Upon payout (as defined in the Farmout) of the earning well, Assignor
shall have the option to retain its overriding royalty interest, or convert its
overriding royalty interest to a twenty-five (25%) percent working interest in
the earned acreage, together with a like interest in and to the earning well,
all equipment and other property appurtenant to such well.
4. Assignor's overriding royalty shall automatically attach to and encumber
any renewal or extension of the subject leases or any new lease or leases
covering lands affected by this assignment taken within one (1) year of the
termination of any of the subject leases insofar as Assignee acquires said
renewal, extension or new leases.
5. Assignor also reserves for itself, its successors and assigns, its
proportionate share of the minerals covered by the subject leases other than
oil, gas and other liquid or gaseous hydrocarbons.
6. Assignee hereby assumes all of the obligations imposed upon Assignor
under the provisions of the subject leases and agrees to reimburse Assignor for
any and all costs, expenses, losses and damages of any kind or character
sustained by it as a result of any failure of Assignee to perform such
obligations.
7. Assignor shall have unrestricted access to the lands covered by this
assignment for the purpose of conducting drilling, mining, reworking and
production operations as to all horizons and minerals not covered by this
assignment. Assignor shall also have unrestricted access to the lands covered by
this assignment and any units in which they may be included for the purpose of
witnessing all operations thereon and of measuring and gauging and/or witnessing
the measuring and gauging of the production obtained therefrom.
8. Assignor hereby expressly reserves the preferential right and option to
purchase currently, at a price not less than the average posted field price as
produced, all oil and condensate produced and saved from the subject leases, or
which is attributable thereto, such right to be exercised at any time Page 2 and
<PAGE>
from time to time. Assignor, in addition, reserves the preferential right and
option to purchase gas and casinghead gas subject to the terms and limitations
set forth in the Farmout.
9. Assignee agrees to indemnify and save Assignor harmless from all losses,
costs, claims, expenses, damages, liabilities, suits, actions, judgments and
decrees (including attorney's fees and court costs) in any wise arising,
including theories of strict liability, negligence, and intentional torts,
growing out of, attributable to, or resulting from the operations of Assignee
connected with the drilling, testing, completion or abandonment of wells drilled
by Assignee on lands described in the subject leases or lands pooled therewith.
10. Assignee agrees that it shall, at its sole cost and expense, plug and
abandon the earning well drilled pursuant to the Farmout in accordance with all
applicable rules and regulations of any governmental body having jurisdiction
thereover, and in addition, restore the leased premises to their former state as
nearly as practical and settle and dispose of all claims for damages arising
from or in connection with the drilling of said well, including, but not limited
to, damages to the surface of the land, trees and growing crops, and loss of
soil fertility, and shall furnish satisfactory evidence to Assignor that the
foregoing has been accomplished.
11. Assignee agrees that it will not assign, sublease or transfer, in whole
or part, any rights acquired herein or by virtue of the above identified Farmout
without the prior written consent of Assignor.
12. The parties hereto agree that all rights herein granted shall terminate
and automatically revert to Assignor without the necessity of any actions by the
parties hereto in the event production from the acreage heroin assigned ceases,
and Assignee fails to commence reworking operations within thirty (30) days
after the cessation of said production, or upon the expiration of thirty (30)
days after reworking operations timely commenced are abandoned without restoring
production in commercial quantities. Assignee agrees that, upon request by
Assignor, it will evidence such reversion by execution of an appropriate
assignment in recordable form. It is understood and agreed that such reversion
and assignment shall be free and clear of all liens, claims and encumbrances
against such leasehold estate created by Assignee and shall be free and clear of
any overriding royalties, production payments and other similar burdens other
than those presently burdening Assignor's leasehold interest at the time of this
assignment. It is further understood and agreed that the automatic reversion of
rights to Assignor shall not relieve Assignee of liability for obligations
assumed hereunder which accrued prior to the reversion of rights to Assignor,
including, but not limited to, the obligation to restore the surface of the
leased premises and the obligation to plug and abandon the earning well
re-entered or drilled by Assignee.
13. This assignment is made subject to Assignee's obtaining all required
consents and approvals from lessors, joint interest partners, prior assignors
and any governmental agency having jurisdiction, which approvals and consents
Assignee agrees to seek.
14. This assignment is made without any warranty of title and without
recourse of any nature against Assignor, even for return of any consideration
paid or given for this assignment.
<PAGE>
This instrument may be signed in any number of counterparts, each of which
shall be binding on the party or parties so signing regardless of whether all
parties join in the instrument. IN WITNESS WHEREOF, this instrument is executed
this ____day of ______________,19__, by Assignor and Assignee in the presence of
the undersigned competent witnesses to be effective as of the ____day of
______________,19__.
WITNESSES: ASSIGNOR:
__________ UNION OIL COMPANY OF CALIFORNIA
BY:
ROBERT ]. SEVIN, JR.
ITS:Attorney-in-Fact
ASSIGNEE:
PROVEN FUEL EXPLORATION, INC.
BY:
William M. Clay
ITS:President
<PAGE>
STATE OF LOUISIANA
PARISH OF LAFAYETTE
On this ___ day of _____________, 1996, before me appeared ROBERT J. SEVIN,
JR., Attorney-in-Fact of UNION OIL COMPANY OF CALIFORNIA, a California
corporation, to me personally known and known by me to be the person whose
genuine signature is affixed to the foregoing instrument, who signed said
instrument before me, and who acknowledged, in my presence, that he signed the
above foregoing instrument as the free act and deed of said corporation.
IN WITNESS WHEREOF, the said Appearer has signed these presents and I have
hereto affixed my hand and seal on the day and date first above written.
NOTARY PUBLIC in and for
Lafayette Parish, Louisiana
My commission is for life.
STATE OF LOUISIANA
PARISH OF LAFAYETTE
On this ___ day of _____________, 19___, before me appeared
___________________________ _________________________, to me personally known,
who, being by me duly sworn, did say that he is the President of PROVEN FUEL
EXPLORATION, INC., and that said instrument was signed on behalf of said
corporation by authority of its Board of Directors, and appearer acknowledged
said instrument to be the free act and deed of said corporation.
_____________________________________________
NOTARY PUBLIC
My commission expires:______________________
1
MANAGEMENT AGREEMENT
BY AND BETWEEN
CAMBRIDGE ENERGY CORPORATION
AND
TRITON WELLHEAD AND MANUFACTURING INC.
THIS AGREEMENT made this 1st day of May, 1998 by and between
CAMBRIDGE ENERGY CORPORATION, (CAMBRIDGE) a Nevada corporation and TRITON
WELLHEAD & MANUFACTURING, INC., (TRITON) a Louisiana corporation,
WITNESSETH:
WHEREAS TRITON is the manufacturer of well control and valve devices
based in Broussard, Louisiana and CAMBRIDGE is a public company engaged in
the exploration and development of oil and gas properties and in other
aspects of the oil and gas industry and
WHEREAS CAMBRIDGE and TRITON have entered into an agreement dated
March 10, 1998 providing for the acquisition of TRITON by CAMBRIDGE and
further
WHEREAS the terms of this acquisition anticipate the conveyance of
clear title to the properties of TRITON including the manufacturing
facility, real estate, equipment and inventory currently subject to
security interests held by two lenders and that additional time through at
least July of 1998 is needed to complete acquisitions and litigation
necessary to provide title to the properties to be conveyed by the
referenced agreement and further
WHEREAS certain assistance is needed to enhance the business during
the period between this agreement and the date on which title can be
conveyed and further that CAMBRIDGE has already begun to provide such
assistance in the form of the hiring of experienced sales personnel,
insurance consultation and other marketing and miscellaneous consultation,
NOW THEREFORE in exchange for the mutual covenants expressed herein
and other good and valuable consideration, receipt and sufficiency of which
is hereby acknowledged, the parties agree as follows:
1. That during the interim period as described below, CAMBRIDGE will
provide to TRITON management and consulting services covering:
a. personnel management: including payroll processing and benefits and
insurance packaging and development of employment administration guidelines
b. administrative services: including accounting and financial
administration and structuring of books and records in preparation of
audit, and structure and preparation of financial statements in accordance
with generally accepted accounting principals
c. facilities management: including planning and design of
rehabilitation and improvements
d. financial planning: including cash flow management and financial
planning for expansion.
In performing these functions, CAMBRIDGE will utilize to the extent
possible existing employees of TRITON and will utilize existing facilities,
equipment and inventory to the maximum reasonable extent.
Further, in performing these duties, Cambridge will have complete and
continuous access to all TRITON facilities and operations and to past and
present TRITON books, records and bank accounts.
CAMBRIDGE management will conduct management meetings at least once
per week in advance of the weeks activities. Such meeting will be in person
or by conference call and will include one or more members of CAMBRIDGE
senior management and one or more members of TRITON senior management. The
agenda for this meeting shall include in advance: the week's production
schedule, sales for the prior week, projected payroll for the week,
projected general and administrative expenses for the week, accounts
receivable status, cash and credit positions and facilities management and
improvement projects.
2. CAMBRIDGE will assist TRITON in obtaining insurance for facilities,
personnel and product liability.
3. CAMBRIDGE may from time to time make advances of funds in
performance of services referenced above, however, CAMBRIDGE shall make
only advances necessary for immediate use, and reasonably practical and
consistent with efficient and economical management. Such advances shall
become a payable on the books of TRITON payable on demand to CAMBRIDGE.
4. For the period of this Agreement, all revenues due TRITON shall be
deposited in its operating account and shall be utilized to pay TRITON
expenses in accordance with a priority of expenses and accounts payable
established by CAMBRIDGE with the agreement of TRITON. These expenses shall
include service on the existing credit line of CAMBRIDGE as well as any
additional credit obtained for TRITON during the term of this agreement. In
addition these expenses shall include any direct supervision expense
incurred by CAMBRIDGE in the performance of this agreement.
5. To compensate CAMBRIDGE for these services, it shall receive 10% of
all revenues over and above the cost of goods sold from sales generated
during the term of this agreement over and above the average sales for a
like period prior to this agreement. In the event that for any reason, the
agreement for the acquisition of TRITON by CAMBRIDGE does not close,
CAMBRIDGE shall be entitled to receive this percentage for all sales by
employees brought into the company by CAMBRIDGE as well as sales to clients
brought into the company during the term of this agreement, for a period of
two (2) years after its termination.
6. The terms of the agreement for the acquisition of TRITON by
CAMBRIDGE referenced above shall continue in force in addition to the terms
hereof and CAMBRIDGE shall continue to use its best efforts to bring about
the changes in title necessary to close that agreement as soon as
reasonably practicable.
7. Arbitration and Jurisdiction: Any dispute among the parties arising
out of this agreement or otherwise shall be settled by arbitration in
accordance with the Commercial Arbitration Rules of the American
arbitration Association. This Agreement is to be construed in accordance
with the Laws of the State of Florida.
8. TRITON Representations and Warranties. TRITON represents that all
documents and other information furnished to CAMBRIDGE are true, correct,
complete and not misleading. TRITON also represents and warrants that it
has not withheld and will not withhold any material information from
CAMBRIDGE or its counsel. TRITON accepts and acknowledges sole
responsibility and liability for any and all damages including the cost of
defense resulting from any action or claim against TRITON which may arise
from information provided by TRITON.
9. Confidentiality: CAMBRIDGE and TRITON mutually agree to hold
confidential and secret all documents, strategies, relationships or actions
which either party may disclose or perform which are disclosed to the other
during the performance of the obligations set forth in this Agreement.
Agreed to and Acknowledged as follows:
Triton Wellhead & Manufacturing, Inc.
by: /s/ William Danado
its: President
Date: May 5, 1998
Cambridge Energy Corporation
by: /s/ Perry D. West
its: Chairman and CEO
Date: May 5, 1998
EXECUTIVE COMPENSATION AGREEMENT
between
CAMBRIDGE ENERGY CORPORATION
and
PERRY DOUGLAS WEST
This Agreement is made this 2nd day of January, 1998, by and between
CAMBRIDGE ENERGY CORPORATION, a Nevada corporation ("CAMBRIDGE"), and PERRY
DOUGLAS WEST, ("WEST").
WHEREAS,CAMBRIDGE is engaged in the business of oil and gas exploration
and development; and
WHEREAS, CAMBRIDGE desires to retain the services of the WEST in the
capacity of its Chairman and Chief Executive Officer.
NOW THEREFORE, IT IS AGREED AS FOLLOWS:
SECTION 1. EMPLOYMENT.
1.1 EXECUTIVE EMPLOYMENT. CAMBRIDGE appoints WEST and
WEST accepts the appointment as Chairman and Chief Executive Officer until
January 1, 2003.
1.2 ADVISORY PERIOD. If WEST's Executive Employment is
terminated as provided in paragraph (1.1) above, or in any other manner, he
shall nevertheless be retained thereafter by CAMBRIDGE as an advisor and
consultant until January 1, 2008 (Advisory Period).
SECTION 2. DUTIES. WEST shall serve as Chairman and Chief Executive
Officer of CAMBRIDGE, with such duties as are customarily associated with such
position in public corporations and specifically as set out in the By-Laws of
CAMBRIDGE.
SECTION 3. EXTENT OF SERVICES. WEST shall devote his best efforts,
attention, and energies to the performance of his duties as set out above. The
duties shall be rendered at the CAMBRIDGE office in Florida, or at such other
place or places and at such times as the needs of CAMBRIDGE may from
time-to-time dictate.
Nothing in this Agreement shall preclude WEST from conducting other
business or holding official positions or directorships in other entities, the
activities of which do not directly conflict with WEST's duties and
responsibilities as Chairman and Chief Executive Officer of CAMBRIDGE.
<PAGE>
SECTION 4. TERM. The term of this Agreement shall begin on January 2,
1998 (the "Effective Date"), and shall continue for a five year period. The
parties presently anticipate that the employment relationship may continue
beyond this five-year term.
SECTION 5. EXECUTIVE COMPENSATION.
5.1 BASE SALARY. CAMBRIDGE will pay to WEST a base salary for
the first year in the amount of One Hundred Fifty Thousand Dollars ($150,000),
payable in accordance with CAMBRIDGE's standard payroll procedures but no less
frequently than monthly, at the election of WEST.
5.2 SUPPLEMENTAL SALARY.
(a) WEST's Base Salary at the rate of $150,000
plus 25% in cash per annum will be paid beginning from the first day of the
month following the quarter in which CAMBRIDGE achieves annualized gross
revenues of at least $4,000,000.
(b) When CAMBRIDGE achieves first fiscal year
$4,000,000 in gross revenues, WEST will be entitled to a 50% increase in base
salary over and above any quarterly increases. This newly calculated Base Salary
will then become the Base Salary for the second year of employment.
(c) WEST's increased Base Salary plus 25% in
cash per annum will be paid beginning from the first day of the month following
the quarter in which CAMBRIDGE achieves annualized gross revenues of at least
$8,000,000.
(d) When CAMBRIDGE achieves second year
$8,000,000 in gross revenues, WEST will be entitled to a 50% increase in base
salary over and above any quarterly increases. This newly calculated Base
Salary will then become the Base Salary for the third year of employment.
(e) The same procedure will be followed for
determining WEST's compensation in the third through the fifth years of this
Agreement, with the gross revenue thresholds for quarterly and annual increases
negotiated with the Board of Directors prior to the beginning of the third,
fourth and fifth years of this Agreement, except that at no time will WEST's
Base Salary be less than that determined at the beginning of the third year of
employment. Said supplemental salary shall be effective throughout the
executive period and the advisory period of employment.
(f) Notwithstanding the goals set out above,
in the event that CAMBRIDGE has substantially advanced toward its goals and
objectives during any quarter, and other advances have been made such as
acquisition of businesses or properties,WEST shall be entitled to a supplemental
salary amount for the following quarter and/or lump sum bonus in an amount set
by the Board of Directors.
<PAGE>
(g) During any period of the contract in which WEST
provides legal services relating to CAMBRIDGE which are outside those services
normally provided by a Chairman and Chief Executive Officer,he shall be entitled
to separate and supplemental compensation in amounts reasonably associated with
such services, in addition to other compensation provided for under this
agreement.
(h) WEST shall be entitled to lump sum
supplement, consisting of options to purchase 100,000 shares of CAMBRIDGE
common stock at a strike price of $1.00 per share at the time CAMBRIDGE'S
common stock is accepted for trading on NASDAQ (small cap), American Stock
Exchange or other recognized stock exchange.
5.3 BONUSES. WEST shall be eligible to receive a discretionary
bonus for each year (or portion thereof) during the term of this Agreement and
any extensions thereof, with the actual amount of any such bonus to be
determined in the sole discretion of the Board of Directors based upon its
evaluation of WEST's performance during such year.
SECTION 6 EXECUTIVE BENEFIT PACKAGE.
6.1 Insurance Benefits. Medical, dental and optical insurance
for WEST and WEST's immediate family shall be paid by CAMBRIDGE. In addition,
WEST shall be entitled to receive a supplemental medical, dental and optical
compensation benefit, an amount when placed with the amount payable the
insurance policies referenced above shall equal one hundred percent (100%) of
the cost of medical treatment for WEST and WEST's immediate family.
6.2 Disability Benefits. In the event WEST should become
disabled during the period of his executive employment, his salary shall
continue at the same rate that it was on the date of such disability. If such
disability continues for a period of five consecutive months (or WEST shall
die), CAMBRIDGE may at its option thereafter, upon written notice to WEST or his
Personal Representative, terminate his executive employment. In such event the
advisory period shall commence immediately upon such termination of employment
and shall continue until January 1, 2008, regardless of the disability or death
of WEST. If WEST shall receive any disability payments from any insurance
policies paid for by CAMBRIDGE, payments to WEST during any period of disability
shall be reduced by the amount of the disability payments received by WEST under
such insurance policy or policies. For the purposes of this agreement,
disability shall mean mental or physical illness or condition rendering WEST
incapable of performing his normal duties with CAMBRIDGE.
<PAGE>
6.3 Vacation Benefits. WEST shall be entitled to four(4)
weeks of vacation leave per year for each year of the contract period including
the executive and advisory period, cumulative at the option of WEST.
6.4 Automobile Benefits. WEST shall receive annually an
automobile of a make and model of his selection for his use. Provided, however,
that any amount of expenditure in excess of that proscribed as an ordinary and
necessary business expense by the Internal Revenue Service shall be deducted
from the base salary as set out above. WEST shall have the option of accepting a
cash disbursement equal to the amount set out above for the use of his private
automobile. In addition, WEST shall receive reimbursement for all reasonable and
necessary expense necessary for the maintenance and upkeep of said automobile
including repairs, gasoline, oil, and insurance.
6.5 Death Benefits. If WEST shall die between the date of this
agreement and January 1, 2008, compensation payments hereunder shall not cease
and CAMBRIDGE shall pay to WEST's widow, if she survives him, or if she shall
not survive him to his estate, in equal monthly installments in an amount equal
to the advisory compensation provide for above. Such payments shall commence
with the month following the date of death. Said amount shall not be less than
two years' base salary plus medical, dental and optical coverage for at least
two(2) years, if less time is remaining on subject contract.
6.6 Employment Benefits. This Agreement is not intended to and
shall not be deemed to be in lieu of any rights, benefits and privileges to
which WEST may be entitled as an employee of CAMBRIDGE under any retirement,
pension, profit-sharing, insurance, hospital, automobile or other plans which
may now be in effect or which may hereinafter be adopted, it being understood
that WEST shall have the same rights and privileges to participate in such plans
and benefits as any other employee during this period providing such benefits
are at least equal to those provided herein.
SECTION 7 STOCK AND STOCK OPTIONS
7.1 It is acknowledged that WEST owns a substantial number
of shares of common stock in CAMBRIDGE and further, that
(a) CAMBRIDGE shall register for public trading
with the Securities and Exchange Commission at least ten percent (10%) of the
shares owned by WEST per year for each year of the contract beginning with the
second year of the contract or the first offering of securities, whichever shall
occur first.
<PAGE>
(b) In the event a voluntary termination by WEST
and CAMBRIDGE, CAMBRIDGE shall register the balance of the stock owned by
WEST pro-rata over five (5) years following such termination in the event such
stock is not sooner sold.
(c) In the event of involuntary termination
or an offer is made by a single purchaser or group of purchasers and accepted
by CAMBRIDGE for 51% or more of the outstanding common stock of CAMBRIDGE,
all remaining shares of stock owned by WEST shall be registered for public
trading immediately.
7.2 WEST is entitled to receive stock distributions of fully
paid and non-assessable common stock of CAMBRIDGE, in addition to any other
stock options WEST may be entitled to, as described in Exhibit A to this
Agreement, entitled "Key Employee Stock Option Plan.
SECTION 8. TERMINATION.
8.1 Termination For Cause. Termination For Cause may be
effected by CAMBRIDGE at any time during the term of this Agreement and shall be
effected by written notification to WEST. Provided, however, WEST shall be given
30 days from date of delivery of such notification to cure the defect set out in
the notice. Upon Termination For Cause, Employee shall promptly be paid all
accrued salary, bonus compensation to extent earned, vested deferred
compensation (other than pension or profit sharing plan benefits which will be
paid in accordance with the applicable plan), any benefits under any plans of
CAMBRIDGE in which WEST is a participant to the full extent of WEST's rights
under such plans, accrued vacation pay and any appropriate business expenses
incurred by WEST in connection with his duties hereunder, all to the date of
termination.
8.2 Termination Other Than For Cause. Notwithstanding anything
else in this Agreement, CAMBRIDGE may effect a Termination Other Than For Cause
at any time upon giving written notice to WEST of such termination. Upon any
Termination Other Than For Cause, WEST shall promptly be paid all accrued
salary, bonus compensation to extent earned, vested deferred compensation (other
than pension or profit sharing plan benefits which will be paid in accordance
with the applicable plan), any benefits under any plans of CAMBRIDGE in which
WEST is a participant to the full extent of WEST's rights under such plans,
(including accelerated vesting, if any, of awards granted to WEST under
CAMBRIDGE's stock option plan), accrued vacation pay and any appropriate
business expenses incurred by WEST in connection with his duties hereunder, all
to the date of termination. Thereafter, WEST will be retained as an advisor and
consultant during the Advisory Period in accordance with Paragraph 1.2.
<PAGE>
8.3 Voluntary Termination. In the event of a Voluntary
Termination, WEST shall promptly be paid all accrued salary, bonus compensation
to extent earned, vested deferred compensation (other than pension or profit
sharing plan benefits which will be paid in accordance with the applicable
plan), any benefits under any plans of CAMBRIDGE in which WEST is a participant
to the full extent of WEST's rights under such plans, accrued vacation pay and
any appropriate business expenses incurred by WEST in connection with his duties
hereunder, all to the date of termination. Thereafter, WEST will be retained as
an advisor and consultant during the Advisory Period in accordance with
Paragraph 1.2.
8.4 Termination Upon A Change of Control. In the event of a
Termination Upon A Change of Control, WEST shall promptly be paid all accrued
salary, bonus compensation to extent earned, vested deferred compensation (other
than pension or profit sharing plan benefits which will be paid in accordance
with the applicable plan), any benefits under any plans of CAMBRIDGE in which
WEST is a participant to the full extent of WEST's rights under such plans,
accrued vacation pay and any appropriate business expenses incurred by WEST in
connection with his duties hereunder, all to the date of termination.
Thereafter, WEST will be retained as an advisor and consultant during the
Advisory Period in accordance with Paragraph 1.2.
8.5 Notice of Termination. CAMBRIDGE may effect a termination
of this Agreement pursuant to the provisions of this Section upon giving 30 days
written notice to WEST of such termination. WEST may effect a termination of
this Agreement pursuant to the provisions of this Section upon giving 30 days
written notice to CAMBRIDGE of such termination.
SECTION 9. CONFIDENTIALITY.
WEST acknowledges that he will develop and be exposed to
information that is or will be confidential and proprietary to the CAMBRIDGE.
The information includes oil and gas prospects, engineering and geological
information, exploration and development plans, and other intangible
information. Such information shall be deemed confidential to the extent not
generally known within the trade. WEST agrees to make use of such information
only in the performance of his duties under this Agreement, to maintain such
information in confidence and to disclose the information only to persons with a
need to know.
SECTION 10. MISCELLANEOUS PROVISIONS.
10.1 WAIVER. CAMBRIDGE's waiver of the WEST's breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach by the WEST.
<PAGE>
10.2 NOTICES. Any notices permitted or required under this
Agreement shall be deemed given upon the date of personal delivery or
forty-eight (48) hours after deposit in the United States mail, postage fully
prepaid, return receipt requested, addressed to CAMBRIDGE at:
CAMBRIDGE ENERGY CORPORATION
215 South Riverside drive
Suite 12
Cocoa, Florida 32922
addressed to WEST at:
Perry Douglas West
Post Office Box 1656
Cocoa, Florida 32923
or at any other address as any party may, from time to time, designate by notice
given in compliance with this Section.
10.3 LAW GOVERNING. This Agreement shall be governed by and
construed in accordance with the laws of the State of Florida.
10.4 TITLES AND CAPTIONS. All section titles or captions
contained in this Agreement are for convenience only and shall not be deemed
part of the context nor effect the interpretation of this Agreement.
10.5 ENTIRE AGREEMENT. This Agreement contains the entire
understanding between and among the parties and supersedes any prior
understandings and agreements among them respecting the subject matter of this
Agreement.
10.6 NON-TRANSFERABILITY. Neither WEST, his wife, nor their
estates shall have any right to commute, anticipate, encumber, or dispose of any
payment hereunder, which payment and the rights thereto are expressly declared
nonassignable and nontransferable, except as other wise specifically provided
herein.
10.7 AGREEMENT BINDING. This Agreement shall inure to the
benefit of and be binding upon CAMBRIDGE, its successors and assigns, including,
without limitations, any persons, partnership, company or corporation which may
acquire substantially all of CAMBRIDGE'S assets or business or with or into
which CAMBRIDGE may be liquidated, consolidated, merged or otherwise combined,
and shall inure to the benefit of and be binding upon WEST, his heirs,
distributees and personal representatives. If payments become payable to the
surviving widow of WEST and he shall thereafter die prior to January 1, 2008,
such payments shall nevertheless continue to be made to his estate until such
date.
<PAGE>
10.8 ATTORNEY FEES. In the event arbitration or suit is
brought by any party to this Agreement to enforce any of its terms, and in any
appeal therefrom, it is agreed that the prevailing party shall be entitled to
reasonable attorneys fees to be fixed by the arbitrator, trial, and/or appellate
court.
10.9 COMPUTATION OF TIME. In computing any period of time
pursuant to this Agreement, the day of the act, event or default from which the
designated period of time begins to run shall be included, unless it is a
Saturday, Sunday, or a legal holiday, in which event the period shall begin to
run on the next day which is not a Saturday, Sunday, or legal holiday, in which
event the period shall run until the end of the next day thereafter which is not
a Saturday, Sunday, or legal holiday.
10.10 PRONOUNS AND PLURALS. All pronouns and any variations
thereof shall be deemed to refer to the masculine, feminine, neuter, singular,
or plural as the identity of the person or persons may require.
10.11 ARBITRATION. If at any time during the term of this
Agreement any dispute, difference, or disagreement shall arise upon or in
respect of the Agreement, and the meaning and construction hereof, every such
dispute, difference, and disagreement shall be referred to a single arbiter
agreed upon by the parties, or if no single arbiter can be agreed upon, an
arbiter or arbiters shall be selected in accordance with the rules of the
American Arbitration Association and such dispute, difference, or disagreement
shall be settled by arbitration in accordance with the then prevailing
commercial rules of the American Arbitration Association, and judgment upon the
award rendered by the arbiter may be entered in any court having jurisdiction
thereof.
10.12 PRESUMPTION. This Agreement or any section thereof shall
not be construed against any party due to the fact that said Agreement or any
section thereof was drafted by said party.
10.13 FURTHER ACTION. The parties hereto shall execute and
deliver all documents, provide all information and take or forbear from all such
action as may be necessary or appropriate to achieve the purposes of the
Agreement.
10.14 PARTIES IN INTEREST. Nothing herein shall be construed
to be to the benefit of any third party, nor is it intended that any provision
shall be for the benefit of any third party.
<PAGE>
10.15 SEVERABILITY. If any provision of this Agreement, or the
application of such provision to any person or circumstance, shall be held
invalid, the remainder of this Agreement, or the application of such provision
to persons or circumstances other than those as to which it is held invalid,
shall not be affected thereby, and shall remain in full force and effect.
10.16 CAPTIONS. The captions at the head of a section or a
paragraph of this Agreement are designed for convenience of reference only and
are not to be resorted to for the purpose of interpreting any provision of this
Agreement.
CAMBRIDGE ENERGY CORPORATION
a Nevada corporation
by: /s/ Perry D. West
- ---------------------
Perry D. West
its: Chairman and Chief Executive Officer
by: /s/ Lee M. Payne
- --------------------
Lee M. Payne
its: Executive Vice President/Director
/s/ Perry Douglas West
- ----------------------
Perry Douglas West, Individually
EXECUTIVE COMPENSATION AGREEMENT
between
CAMBRIDGE ENERGY CORPORATION
and
LEE M. PAYNE
This Agreement is made this 2nd day of January, 1998, by and between
CAMBRIDGE ENERGY CORPORATION, a Nevada corporation ("CAMBRIDGE"), and LEE M.
PAYNE, ("PAYNE").
WHEREAS,CAMBRIDGE is engaged in the business of oil and gas exploration
and development; and
WHEREAS, CAMBRIDGE desires to retain the services of the PAYNE in the
capacity of its Executive Vice President and Director..
NOW THEREFORE, IT IS AGREED AS FOLLOWS:
SECTION 1. EMPLOYMENT.
1.1 EXECUTIVE EMPLOYMENT. CAMBRIDGE appoints PAYNE and
PAYNE accepts the appointment as Executive Vice President and Director until
January 1, 2003.
1.2 ADVISORY PERIOD. If PAYNE's Executive Employment is
terminated as provided in paragraph (1.1) above, or in any other manner, he
shall nevertheless be retained thereafter by CAMBRIDGE as an advisor and
consultant until January 1, 2008 (Advisory Period).
SECTION 2. DUTIES. PAYNE shall serve as Executive Vice President and
Director of CAMBRIDGE, with such duties as are customarily associated with such
position in public corporations and specifically as set out in the By-Laws of
CAMBRIDGE.
SECTION 3. EXTENT OF SERVICES. PAYNE shall devote his best efforts,
attention, and energies to the performance of his duties as set out above. The
duties shall be rendered at the CAMBRIDGE office in Florida, or at such other
place or places and at such times as the needs of CAMBRIDGE may from
time-to-time dictate.
Nothing in this Agreement shall preclude PAYNE from conducting other
business or holding official positions or directorships in other entities, the
activities of which do not directly conflict with PAYNE's duties and
responsibilities as Executive Vice President and Director of CAMBRIDGE.
<PAGE>
SECTION 4. TERM. The term of this Agreement shall begin on January 2,
1998 (the "Effective Date"), and shall continue for a five year period. The
parties presently anticipate that the employment relationship may continue
beyond this five-year term.
SECTION 5. EXECUTIVE COMPENSATION.
5.1 BASE SALARY. CAMBRIDGE will pay to PAYNE a base salary for
the first year in the amount of One Hundred Thirty Five Thousand Dollars
($135,000), payable in accordance with CAMBRIDGE's standard payroll procedures
but no less frequently than monthly, at the election of PAYNE.
5.2 SUPPLEMENTAL SALARY.
(a) PAYNE's Base Salary at the rate of $135,000
plus 25% in cash per annum will be paid beginning from the first day of the
month following the quarter in which CAMBRIDGE achieves annualized gross
revenues of at least $4,000,000.
(b) When CAMBRIDGE achieves first fiscal year
$4,000,000 in gross revenues, PAYNE will be entitled to a 50% increase in base
salary over and above any quarterly increases. This newly calculated Base Salary
will then become the Base Salary for the second year of employment.
(c) PAYNE's increased Base Salary plus 25% in
cash per annum will be paid beginning from the first day of the month following
the quarter in which CAMBRIDGE achieves annualized gross revenues of at least
$8,000,000.
(d) When CAMBRIDGE achieves second year
$8,000,000 in gross revenues, PAYNE will be entitled to a 50% increase in base
salary over and above any quarterly increases. This newly calculated Base
Salary will then become the Base Salary for the third year of employment.
(e) The same procedure will be followed for
determining PAYNE's compensation in the third through the fifth years of this
Agreement, with the gross revenue thresholds for quarterly and annual increases
negotiated with the Board of Directors prior to the beginning of the third,
fourth and fifth years of this Agreement, except that at no time will PAYNE's
Base Salary be less than that determined at the beginning of the third year of
employment. Said supplemental salary shall be effective throughout the
executive period and the advisory period of employment.
(f) Notwithstanding the goals set out above,
in the event that CAMBRIDGE has substantially advanced toward its goals and
objectives during any quarter, and other advances have been made such as
acquisition of businesses or properties,PAYNE shall be entitled to a upplemental
salary amount for the following quarter and/or lump sum bonus in an amount set
by the Board of Directors.
<PAGE>
(g)During any period of the contract in which PAYNE
provides legal services relating to CAMBRIDGE which are outside those services
normally provided by a Chairman and Chief Executive Officer,he shall be entitled
to separate and supplemental compensation in amounts reasonably associated with
such services, in addition to other compensation provided for under this
agreement.
(h) PAYNE shall be entitled to lump sum
supplement, consisting of options to purchase 100,000 shares of CAMBRIDGE
common stock at a strike price of $1.00 per share at the time CAMBRIDGE'S
common stock is accepted for trading on NASDAQ (small cap), American Stock
Exchange or other recognized stock exchange.
5.3 BONUSES.PAYNE shall be eligible to receive a discretionary
bonus for each year (or portion thereof) during the term of this Agreement and
any extensions thereof, with the actual amount of any such bonus to be
determined in the sole discretion of the Board of Directors based upon its
evaluation of PAYNE's performance during such year.
SECTION 6 EXECUTIVE BENEFIT PACKAGE.
6.1 Insurance Benefits. Medical, dental and optical insurance
for PAYNE and PAYNE's immediate family shall be paid by CAMBRIDGE. In addition,
PAYNE shall be entitled to receive a supplemental medical, dental and optical
compensation benefit, an amount when placed with the amount payable the
insurance policies referenced above shall equal one hundred percent (100%) of
the cost of medical treatment for PAYNE and PAYNE's immediate family.
6.2 Disability Benefits. In the event PAYNE should become
disabled during the period of his executive employment, his salary shall
continue at the same rate that it was on the date of such disability. If such
disability continues for a period of five consecutive months or PAYNE shall
die), CAMBRIDGE may at its option thereafter,upon written notice to PAYNE or his
Personal Representative, terminate his executive employment. In such event the
advisory period shall commence immediately upon such termination of employment
and shall continue until January 1, 2008, regardless of the disability or death
of PAYNE. If PAYNE shall receive any disability payments from any insurance
policies paid for by CAMBRIDGE,payments to PAYNE during any period of disability
shall be reduced by the amount of the disability paymentsreceived by PAYNE under
such insurance policy or policies. For the purposes of this agreement,
disability shall mean mental or physical illness or condition rendering PAYNE
incapable of performing his normal duties with CAMBRIDGE.
<PAGE>
6.3 Vacation Benefits. PAYNE shall be entitled to four(4)
weeks of vacation leave per year for each year of the contract period including
the executive and advisory period, cumulative at the option of PAYNE.
6.4 Automobile Benefits. PAYNE shall receive annually an
automobile of a make and model of his selection for his use. Provided, however,
that any amount of expenditure in excess of that proscribed as an ordinary and
necessary business expense by the Internal Revenue Service shall be deducted
from the base salary as set out above. PAYNE shall have the option of accepting
a cash disbursement equal to the amount set out above for the use of his private
automobile. In addition,PAYNE shall receive reimbursement for all reasonable and
necessary expense necessary for the maintenance and upkeep of said automobile
including repairs, gasoline, oil, and insurance.
6.5 Death Benefits.If PAYNE shall die between the date of this
agreement and January 1, 2008, compensation payments hereunder shall not cease
and CAMBRIDGE shall pay to PAYNE's widow, if she survives him, or if she shall
not survive him to his estate, in equal monthly installments in an amount equal
to the advisory compensation provide for above. Such payments shall commence
with the month following the date of death. Said amount shall not be less than
two years' base salary plus medical, dental and optical coverage for at least
two(2) years, if less time is remaining on subject contract.
6.6 Employment Benefits. This Agreement is not intended to and
shall not be deemed to be in lieu of any rights, benefits and privileges to
which PAYNE may be entitled as an employee of CAMBRIDGE under any retirement,
pension, profit-sharing, insurance, hospital, automobile or other plans which
may now be in effect or which may hereinafter be adopted, it being understood
that PAYNE shall have the same rights and privileges to participate in such plan
and benefits as any other employee during this period providing such benefits
are at least equal to those provided herein.
SECTION 7 STOCK AND STOCK OPTIONS
7.1 It is acknowledged that PAYNE owns a substantial number
of shares of common stock in CAMBRIDGE and further, that
(a) CAMBRIDGE shall register for public trading
with the Securities and Exchange Commission at least ten percent (10%) of the
shares owned by PAYNE per year for each year of the contract beginning with the
second year of the contract or the first offering of securities, whichever shall
occur first.
<PAGE>
(b) In the event a voluntary termination by PAYNE
and CAMBRIDGE, CAMBRIDGE shall register the balance of the stock owned by
PAYNE pro-rata over five (5) years following such termination in the event such
stock is not sooner sold.
(c) In the event of involuntary termination
or an offer is made by a single purchaser or group of purchasers and accepted
by CAMBRIDGE for 51% or more of the outstanding common stock of CAMBRIDGE,
all remaining shares of stock owned by PAYNE shall be registered for public
trading immediately.
7.2 PAYNE is entitled to receive stock distributions of fully
paid and non-assessable common stock of CAMBRIDGE, in addition to any other
stock options PAYNE may be entitled to, as described in Exhibit A to this
Agreement, entitled "Key Employee Stock Option Plan.
SECTION 8. TERMINATION.
8.1 Termination For Cause. Termination For Cause may be
effected by CAMBRIDGE at any time during the term of this Agreement and shall be
effected by written notification to PAYNE.Provided, however,PAYNE shall be given
30 days from date of delivery of such notification to cure the defect set out in
the notice. Upon Termination For Cause, Employee shall promptly be paid all
accrued salary, bonus compensation to extent earned, vested deferred
compensation (other than pension or profit sharing plan benefits which will be
paid in accordance with the applicable plan), any benefits under any plans of
CAMBRIDGE in which PAYNE is a participant to the full extent of PAYNE's rights
under such plans, accrued vacation pay and any appropriate business expenses
incurred by PAYNE in connection with his duties hereunder, all to the date of
termination.
8.2 Termination Other Than For Cause. Notwithstanding anything
else in this Agreement, CAMBRIDGE may effect a Termination Other Than For Cause
at any time upon giving written notice to PAYNE of such termination. Upon any
Termination Other Than For Cause, PAYNE shall promptly be paid all accrued
salary, bonus compensation to extent earned, vested deferred compensation (other
than pension or profit sharing plan benefits which will be paid in accordance
with the applicable plan), any benefits under any plans of CAMBRIDGE in which
PAYNE is a participant to the full extent of PAYNE's rights under such plans,
(including accelerated vesting, if any, of awards granted to PAYNE under
CAMBRIDGE's stock option plan), accrued vacation pay and any appropriate
business expenses incurred by PAYNE in connection with his duties hereunder, all
to the date of termination. Thereafter, PAYNE will be retained as an advisor and
consultant during the Advisory Period in accordance with Paragraph 1.2.
<PAGE>
8.3 Voluntary Termination. In the event of a Voluntary
Termination, PAYNE shall promptly be paid all accrued salary, bonus compensation
to extent earned, vested deferred compensation (other than pension or profit
sharing plan benefits which will be paid in accordance with the applicable
plan), any benefits under any plans of CAMBRIDGE in which PAYNE is a participant
to the full extent of PAYNE's rights under such plans, accrued vacation pay and
any appropriate business expense incurred by PAYNE in connection with his duties
hereunder, all to the date of termination. Thereafter, PAYNE will be retained as
an advisor and consultant during the Advisory Period in accordance with
Paragraph 1.2.
8.4 Termination Upon A Change of Control. In the event of a
Termination Upon A Change of Control, PAYNE shall promptly be paid all accrued
salary, bonus compensation to extent earned, vested deferred compensation (other
than pension or profit sharing plan benefits which will be paid in accordance
with the applicable plan), any benefits under any plans of CAMBRIDGE in which
PAYNE is a participant to the full extent of PAYNE's rights under such plans,
accrued vacation pay and any appropriate business expenses incurred by PAYNE in
connection with his duties hereunder, all to the date of termination.
Thereafter, PAYNE will be retained as an advisor and consultant during the
Advisory Period in accordance with Paragraph 1.2.
8.5 Notice of Termination. CAMBRIDGE may effect a termination
of this Agreement pursuant to the provisions of this Section upon giving 30 days
written notice to PAYNE of such termination. WEST may effect a termination of
this Agreement pursuant to the provisions of this Section upon giving 30 days
written notice to CAMBRIDGE of such termination.
SECTION 9. CONFIDENTIALITY.
PAYNE acknowledges that he will develop and be exposed to
information that is or will be confidential and proprietary to the CAMBRIDGE.
The information includes oil and gas prospects, engineering and geological
information, exploration and development plans, and other intangible
information. Such information shall be deemed confidential to the extent not
generally known within the trade. PAYNE agrees to make use of such information
only in the performance of his duties under this Agreement, to maintain such
information in confidence and to disclose the information only to persons with a
need to know.
SECTION 10. MISCELLANEOUS PROVISIONS.
10.1 WAIVER. CAMBRIDGE's waiver of the PAYNE's breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach by the PAYNE.
<PAGE>
10.2 NOTICES. Any notices permitted or required under this
Agreement shall be deemed given upon the date of personal delivery or
forty-eight (48) hours after deposit in the United States mail, postage fully
prepaid, return receipt requested, addressed to CAMBRIDGE at:
CAMBRIDGE ENERGY CORPORATION
215 South Riverside drive
Suite 12
Cocoa, Florida 32922
addressed to PAYNE at:
Lee M. Payne
1295 Rockledge Drive
Rockledge, Florida 32955
or at any other address as any party may, from time to time, designate by notice
given in compliance with this Section.
10.3 LAW GOVERNING. This Agreement shall be governed by and
construed in accordance with the laws of the State of Florida.
10.4 TITLES AND CAPTIONS. All section titles or captions
contained in this Agreement are for convenience only and shall not be deemed
part of the context nor effect the interpretation of this Agreement.
10.5 ENTIRE AGREEMENT. This Agreement contains the entire
understanding between and among the parties and supersedes any prior
understandings and agreements among them respecting the subject matter of this
Agreement.
10.6 NON-TRANSFERABILITY. Neither PAYNE, his wife, nor their
estates shall have any right to commute, anticipate, encumber, or dispose of any
payment hereunder, which payment and the rights thereto are expressly declared
nonassignable and nontransferable, except as other wise specifically provided
herein.
10.7 AGREEMENT BINDING. This Agreement shall inure to the
benefit of and be binding upon CAMBRIDGE, its successors and assigns, including,
without limitations, any persons, partnership, company or corporation which may
acquire substantially all of CAMBRIDGE'S assets or business or with or into
which CAMBRIDGE may be liquidated, consolidated, merged or otherwise combined,
and shall inure to the benefit of and be binding upon PAYNE, his heirs,
distributees and personal representatives. If payments become payable to the
surviving widow of PAYNE and he shall thereafter die prior to January 1, 2008,
such payments shall nevertheless continue to be made to his estate until such
date.
<PAGE>
10.8 ATTORNEY FEES. In the event arbitration or suit is
brought by any party to this Agreement to enforce any of its terms, and in any
appeal therefrom, it is agreed that the prevailing party shall be entitled to
reasonable attorneys fees to be fixed by the arbitrator, trial, and/or appellate
court.
10.9 COMPUTATION OF TIME. In computing any period of time
pursuant to this Agreement, the day of the act, event or default from which the
designated period of time begins to run shall be included, unless it is a
Saturday, Sunday, or a legal holiday, in which event the period shall begin to
run on the next day which is not a Saturday, Sunday, or legal holiday, in which
event the period shall run until the end of the next day thereafter which is not
a Saturday, Sunday, or legal holiday.
10.10 PRONOUNS AND PLURALS. All pronouns and any variations
thereof shall be deemed to refer to the masculine, feminine, neuter, singular,
or plural as the identity of the person or persons may require.
10.11 ARBITRATION. If at any time during the term of this
Agreement any dispute, difference, or disagreement shall arise upon or in
respect of the Agreement, and the meaning and construction hereof, every such
dispute, difference, and disagreement shall be referred to a single arbiter
agreed upon by the parties, or if no single arbiter can be agreed upon, an
arbiter or arbiters shall be selected in accordance with the rules of the
American Arbitration Association and such dispute, difference, or disagreement
shall be settled by arbitration in accordance with the then prevailing
commercial rules of the American Arbitration Association, and judgment upon the
award rendered by the arbiter may be entered in any court having jurisdiction
thereof.
10.12 PRESUMPTION. This Agreement or any section thereof shall
not be construed against any party due to the fact that said Agreement or any
section thereof was drafted by said party.
10.13 FURTHER ACTION. The parties hereto shall execute and
deliver all documents, provide all information and take or forbear from all such
action as may be necessary or appropriate to achieve the purposes of the
Agreement.
10.14 PARTIES IN INTEREST. Nothing herein shall be construed
to be to the benefit of any third party, nor is it intended that any provision
shall be for the benefit of any third party.
<PAGE>
10.15 SEVERABILITY. If any provision of this Agreement, or the
application of such provision to any person or circumstance, shall be held
invalid, the remainder of this Agreement, or the application of such provision
to persons or circumstances other than those as to which it is held invalid,
shall not be affected thereby, and shall remain in full force and effect.
10.16 CAPTIONS. The captions at the head of a section or a
paragraph of this Agreement are designed for convenience of reference only and
are not to be resorted to for the purpose of interpreting any provision of this
Agreement.
CAMBRIDGE ENERGY CORPORATION
a Nevada corporation
by: /s/ Perry D. West
- ---------------------
Perry D. West
its: Chairman and Chief Executive Officer
by: /s/ Lee M. Payne
- --------------------
Lee M. Payne
its: Executive Vice President/Director
/s/ Lee M. Payne
- ----------------
Lee M. Payne, Individually
CAMBRIDGE ENERGY CORPORATION
EXECUTIVE STOCK OPTION AGREEMENT
CAMBRIDGE ENERGY CORPORATION (the "Company"), desiring to afford an
opportunity to the Grantee named below to purchase certain shares of the
Company's Common Stock to provide the Grantee with an added incentive as an
employee of the Company or one or more of its subsidiaries, hereby grants to the
Grantee, and the Grantee hereby accepts, an option to purchase the number of
such shares specified below, during a term ending at midnight (prevailing local
time at the Company's principal offices) on the expiration date of this Option
specified below, at the option exercise price specified below, subject to and
upon the following terms and conditions:
1. Identifying Provisions. As used in this Option, the following
terms shall have the following respective meanings:
(a) Grantee: Perry Douglas West
(b) Date of grant: June 9, 1997
(c) Number of shares optioned: 1,000,000 Common
(d) Option exercise price per share: $1.50
(e) Expiration date: June 8, 2002
This Option is not intended to be and shall not be treated as an
incentive stock option under Section 422 of the Internal Revenue Code unless
this sentence has been manually lined out and its deletion is followed by the
signature of the corporate officer who signed this Option on behalf of the
Company.
2. Vesting Schedule and Expiration. This Option is not exercisable in
any part until one year after the date of grant. Upon the expiration of one year
after the date of grant and subject to the provisions for termination and
acceleration herein, this Option shall become exercisable in installments as
follows: This Option may not in the aggregate be exercised as to more than 25%
of the total number of shares optioned until one year after the date of grant;
nor as to more than 75% of the total number of shares optioned until two years
after the date of grant; in each case to the nearest whole share. Upon the
expiration of three years after the date of grant this Option may be exercised
as to all optioned shares for which it had not previously been exercised, until
and including the expiration date of this Option wherein upon the Option shall
expire and may thereafter no longer be exercised.
3. Termination Provisions. The right to exercise this Option is
subject to the following additional restrictions and limitations:
(a) Termination of Employment. If the Grantee's employment by
the Company or any of its subsidiaries is terminated for any reason other than
death only that portion of the Option exercisable at the time of such
termination of employment may thereafter be exercised, and it may not be
exercised more than three months after such termination nor after the expiration
date of this Option, whichever date is earlier, unless such termination is by
reason of the Grantee's permanent and total disability, in which case such
period of three months shall be extended to one year. In all other respects,
this Option shall terminate upon such termination of employment.
<PAGE>
(b) Death of Grantee. If the Grantee shall die while this
Option remains exercisable, the Grantee's legal representative or
representatives or the persons entitled to do so under the Grantee's last will
and testament or under applicable intestate laws shall have the right to
exercise this Option, but only for the number of shares as to which this Option
might have been exercised on the date of the Grantee's death, and such right
shall expire and this Option shall terminate one year after the date of the
Grantee's death or on the expiration date of this Option, whichever date is
earlier. In all other respects, this Option shall terminate upon such death.
(c) Continuity of Employment. This Option shall not be
exercisable in any part during the Grantee's lifetime unless at all times
beginning with the date of grant and ending no more than three months prior to
the date of exercise the Grantee has, except for military service leave, sick
leave or other bona fide leave of absence (such as temporary employment by the
United States Government), been in the continuous employ of the Company or a
parent of subsidiary thereof, except that such period of three months shall be
extended to one year following any termination of such employment by reason of
the Grantee's permanent and total disability.
4. Restrictions on Transferability of Option. This Option may not be
transferred by the Grantee other than by will or the laws of descent and
distribution and may be exercised during the Grantee's lifetime only by the
Grantee or the Grantee's guardian or legal representative. However, if this
Option is not intended to be treated as an incentive stock option under Section
422 of the Internal Revenue Code (see Section I above) it may during the
Grantee's lifetime also be transferred to and may thereafter be exercised by
members of the Grantee's immediate family, or a partnership whose members
include only the Grantee and/or members of the Grantee's immediate family, or a
trust for the benefit of only the Grantee and/or members of the Grantee's
immediate family; but (a) any such permitted transfer shall not prevent
termination of the Option following the Grantee's termination of employment as
provided in Section 3 above, and (b) this Option shall terminate immediately if
it has been transferred to a partnership or trust as permitted above and any
person who is not a member of the Grantee's immediate family becomes a member of
such partnership or a beneficiary of such trust, As used herein, the Grantee's
immediate family includes only the Grantee's spouse, parents or other ancestors,
and children and other direct descendants of the Grantee or of the Grantee's
spouse (including such ancestors and descendants by adoption).
5. Adjustments and Corporate Reorganizations. If the outstanding shares
of stock of the class then subject to this Option are increased or decreased, or
are changed into or exchanged for a different number or kind of shares or
securities or other forms of property (including cash) or rights, as a result of
one or more reorganizations, recapitalizations, spin-offs, stock splits, reverse
stock splits, stock dividends or the like, appropriate adjustments shall be made
in the number and/or kind of shares or securities or other forms of property
(including cash) or rights for which this Option may thereafter be exercised,
all without any change in the aggregate exercise price applicable to the
unexercised portions of this Option, but with a corresponding adjustment in the
exercise price per share or other unit. No fractional share of stock shall be
issued under this Option or in connection with any such adjustment. Such
adjustments shall be made by or under authority of the Company's board of
directors whose determinations as to what adjustments shall be made, and the
extent thereof, shall be final, binding and conclusive.
<PAGE>
Upon the dissolution or liquidation of the Company, or upon a
reorganization, merger or consolidation of the Company as a result of which the
outstanding securities of the class then subject to this Option are changed into
or exchanged for property (including cash), rights or securities not of the
Company's issue, or any combination thereof, or upon a sale of substantially all
the property of the Company to, or the acquisition of stock representing more
than eighty percent (80%) of the voting power of the stock of the Company then
outstanding by, another corporation or person, this Option shall terminate,
unless provision be made in writing in connection with such transaction for the
assumption of this Option, or the substitution for this Option of an option
covering the stock of a successor employer corporation, or a parent or a
subsidiary thereof, with appropriate adjustments in accordance with the
provisions hereinabove in this Section entitled "Adjustments and Corporate
Reorganizations" as to the number and kind of shares optioned and their exercise
prices, in which event this Option shall continue in the manner and under the
terms so provided.
If this Option shall terminate pursuant to the next preceding paragraph,
the Grantee or other person then entitled to exercise this Option shall have the
right, at such time prior to the consummation of the transaction causing such
termination as the Company shall designate, to exercise the unexercised portions
of this Option, including the portions thereof which would, but for this Section
entitled "Adjustments and Corporate Reorganizations," not yet be exercisable.
6. Exercise, Payment For and Delivery of Stock. This Option may be
exercised by the Grantee or other person then entitled to exercise it by giving
four business days' written notice of exercise to the Company specifying the
number of shares to be purchased and the total purchase price, accompanied by a
check to the order of the Company in payment of such price. If the Company is
required to withhold on account of any federal, state or local tax imposed as a
result of such exercise, the notice of exercise shall also be accompanied by a
check to the order of the Company in payment if the amount thus required to be
withheld.
7 Alternative Payment with Stock. Notwithstanding the foregoing
provisions requiring payment by check, if stock of the class then subject to
this Option is then Publicly Traded, payment of such purchase price or any
portion thereof may also be made in whole or in part with shares of the same
class of stock as that then subject to this Option, surrendered in lieu of the
payment of cash concurrently with such exercise, the shares so surrendered to be
valued on the basis of the Fair Market Value of the stock on the date of
exercise, in which event the stock certificates evidencing the shares so to be
used shall accompany the notice of exercise and shall be duly endorsed or
accompanied by duly executed stock powers to transfer the same to the Company;
provided, however, that such payment in stock instead of cash shall not be
effective and shall be rejected by the Company if (a) the Company is then
prohibited from purchasing or acquiring shares of the class of its stock thus
tendered to it, or (b) the right or power of the person exercising the Option to
deliver such shares in payment of the purchase price is subject to the prior
interests of any other person (excepting the Company) as indicated by legends
upon the certificate(s) or known to the Company. If the Company rejects the
payment in stock, the tendered notice of exercise shall not be effective
hereunder unless promptly after being notified of such rejection the person
exercising the Option pays the purchase price in acceptable form. If and while
payment with stock is permitted in accordance with the foregoing provision, the
person then entitled to exercise this Option may, in lieu of using previously
outstanding stock therefor, use some of the shares as to which this Option is
then being exercised, in which case the notice of exercise need not be
accompanied by any stock certificates but shall include a statement directing
the Company to retain so many shares that would otherwise have been delivered by
the Company upon that exercise of this Option as equals the number of shares
that would have been surrendered to the Company if the purchase price had been
paid with previously issued stock. If the Company is required to withhold on
account of any federal, state or local tax imposed as a result of an exercise of
this Option with previously issued stock or by retention of some optioned shares
under this Section entitled "Alternative Payment with Stock," the stock
surrendered or retained shall include an additional number of shares whose Fair
Market Value equals the amount thus required to be withheld.
<PAGE>
8. Rights in Stock Before Issuance and Delivery. No person shall be
entitled to the privileges of stock ownership in respect of any shares issuable
upon exercise of this Option, unless and until such shares have been issued to
such person as fully paid shares.
9. Requirements of Law. By accepting this Option, the Grantee represents
and agrees for himself or herself and his or her transferees by will or the laws
of descent and distribution that, unless a registration statement under the
Securities Act of 1933 is in effect as to shares purchased upon any exercise of
this Option, (a) any and all shares so purchased shall be acquired for his or
her personal account and not with a view to or for sale in connection with any
distribution, and (b) each notice of the exercise of any portion of this Option
shall be accompanied by a representation and warranty in writing, signed by the
person entitled to exercise the same, that the shares are being so acquired in
good faith for his or her personal account and not with a view to or for sale in
connection with any distribution.
No certificate or certificates for shares of stock purchased upon
exercise of this Option shall be issued and delivered unless and until, in the
opinion of legal counsel for the Company, such securities may be issued and
delivered without causing the Company to be in violation of or incur any
liability under any federal, state or other securities law or any other
requirement of law or of any regulatory body having jurisdiction over the
Company.
10. Stock Appreciation Rights. The Grantee or other person entitled to
exercise this Option is further hereby granted the right ("Stock Appreciation
Right") in lieu of exercising this Option or any portion thereof to receive an
amount equal to the lesser of (a) the excess of the Fair Market Value of the
stock subject to this Option or such portion thereof over the aggregate exercise
price for such shares hereunder as of the date the Stock Appreciation Right is
exercised, or (b) 200% of the aggregate exercise price for such shares
hereunder. The amount payable upon exercise of such Stock Appreciation Right may
be settled by payment in cash or in shares of the class then subject to this
Option valued on the basis of their Fair Market Value on the date Stock
Appreciation Right is exercised, or in a combination of cash and such shares so
valued. No Stock Appreciation Right may be exercised, in whole or in part, (i)
other than in connection with the contemporaneous surrender without exercise of
this Option or the portion thereof that corresponds to the portion of the Stock
Appreciation Right being exercised, or (ii) except to the extent that this
Option or such portion thereof is exercisable on the date of exercise of the
Stock Appreciation Right by the Person exercising the Stock Appreciation Right,
or (iii) unless the class of stock then subject to this Option is then Publicly
Traded.
<PAGE>
11. Company's Right of First Purchase. While and so long as the stock of the
class subject to this Option has not been Publicly Traded for at least ninety
days, any stock issued on exercise of this Option shall be subject to the
Company's right of first purchase. By virtue of that right, (a) such stock may
not be transferred during the Grantee's lifetime to any person other than
members of the Grantee's Immediate Family, a partnership whose members are the
Grantee and/or members of the Grantee's Immediate Family, or a trust for the
benefit of the Grantee and/ or members of the Grantee's Immediate Family, unless
such transfer occurs within fifteen days following the expiration of thirty days
after the Company has been given a written notice which correctly identified the
prospective transferee or transferees and which offered the Company an
opportunity to purchase such stock at its Fair Market Value in cash, and such
offer was not accepted within thirty days after the Company's receipt of that
notice; and (b) upon the Grantee's death, the Company shall have the right to
purchase all or some of such stock at its Fair Market Value within nine months
after the date of death. This fight of first purchase shall continue to apply to
any such stock after the transfer during the Grantee's lifetime of that stock to
a member of the Grantee's Immediate Family or to a family partnership or trust
as aforesaid, and after any transfer of that stock with respect to which the
Company waived its right of first purchase without also waiving it as to any
subsequent transfers thereof, but it shall not apply after a transfer of that
stock with respect to which the Company was offered but did not exercise or
waive its right of first purchase or more than nine months after the Grantee's
death. The Company may assign all or any portion of its right of first purchase
to any one or more of its stockholders, or to a pension or retirement plan or
trust for employees of the Company, who may then exercise the right so assigned.
Stock certificates evidencing stock subject to this right of first purchase
shall be appropriately legended to reflect that right.
12. Notices. Any notice to be given to the Company shall be addressed
to the Company in care of its Secretary at its principal office, and any notice
to be given to the Grantee shall be addressed to the Grantee at the address set
forth beneath the Grantee's signature hereto or at such other address as the
Grantee may hereafter designate in writing to the Company. Any such notice shall
be deemed duly given when enclosed in a properly sealed envelope or wrapper
addressed as aforesaid, registered or certified, and deposited, postage and
registry or certification fees prepaid, in a post office or branch post office
regularly maintained by the United States Postal Service.
13. Rules of Construction. This Agreement has been executed and
delivered by the Company in the State of Florida, and shall be construed and
enforced in accordance with the laws of Florida, other than any choice of law
rules calling for the application of laws of another jurisdiction. Should there
by any inconsistency or discrepancy between the provisions of this Option and
the terms and conditions of the Executive Compensation Agreement between the
Company and the Grantee, the provisions of this Option shall prevail. The
receipt of this Option does not give the Grantee any right to continued
employment by the Company or subsidiary for any period, nor shall granting of
this Option or the issuance of shares on exercise thereof give the Company or
any subsidiary any right to the continued services of the Grantee for any
period.
<PAGE>
IN WITNESS WHEREOF, the Company has granted this Option on the date of grant
specified above.
CAMBRIDGE ENERGY CORPORATION PERRY DOUGLAS WEST
By: /s/ Perry Douglas West /s/ Perry D. West
- -------------------------- -------------------
Perry Douglas West, Chairman and CEO an individual
By: /s/ Lee M. Payne
- --------------------
Lee M. Payne, Exec. Vice President/ Director
CAMBRIDGE ENERGY CORPORATION
EXECUTIVE STOCK OPTION AGREEMENT
CAMBRIDGE ENERGY CORPORATION (the "Company"), desiring to afford an
opportunity to the Grantee named below to purchase certain shares of the
Company's Common Stock to provide the Grantee with an added incentive as an
employee of the Company or one or more of its subsidiaries, hereby grants to the
Grantee, and the Grantee hereby accepts, an option to purchase the number of
such shares specified below, during a term ending at midnight (prevailing local
time at the Company's principal offices) on the expiration date of this Option
specified below, at the option exercise price specified below, subject to and
upon the following terms and conditions:
1. Identifying Provisions. As used in this Option, the following terms
shall have the following respective meanings:
(a) Grantee: Lee M. Payne
(b) Date of grant: June 9, 1997
(c) Number of shares optioned: 1,000,000 Common
(d) Option exercise price per share: $0.50
(e) Expiration date: June 8, 2002
This Option is not intended to be and shall not be treated as an
incentive stock option under Section 422 of the Internal Revenue Code unless
this sentence has been manually lined out and its deletion is followed by the
signature of the corporate officer who signed this Option on behalf of the
Company.
2. Vesting Schedule and Expiration. This Option is not exercisable in
any part until one year after the date of grant. Upon the expiration of one year
after the date of grant and subject to the provisions for termination and
acceleration herein, this Option shall become exercisable in installments as
follows: This Option may not in the aggregate be exercised as to more than 25%
of the total number of shares optioned until one year after the date of grant;
nor as to more than 75% of the total number of shares optioned until two years
after the date of grant; in each case to the nearest whole share. Upon the
expiration of three years after the date of grant this Option may be exercised
as to all optioned shares for which it had not previously been exercised, until
and including the expiration date of this Option wherein upon the Option shall
expire and may thereafter no longer be exercised.
3. Termination Provisions. The right to exercise this Option is
subject to the following additional restrictions and limitations:
(a) Termination of Employment. If the Grantee's employment by
the Company or any of its subsidiaries is terminated for any reason other than
death only that portion of the Option exercisable at the time of such
termination of employment may thereafter be exercised, and it may not be
exercised more than three months after such termination nor after the expiration
date of this Option, whichever date is earlier, unless such termination is by
reason of the Grantee's permanent and total disability, in which case such
period of three months shall be extended to one year. In all other respects,
this Option shall terminate upon such termination of employment.
<PAGE>
(b) Death of Grantee. If the Grantee shall die while this
Option remains exercisable, the Grantee's legal representative or
representatives or the persons entitled to do so under the Grantee's last will
and testament or under applicable intestate laws shall have the right to
exercise this Option, but only for the number of shares as to which this Option
might have been exercised on the date of the Grantee's death, and such right
shall expire and this Option shall terminate one year after the date of the
Grantee's death or on the expiration date of this Option, whichever date is
earlier. In all other respects, this Option shall terminate upon such death.
(c) Continuity of Employment. This Option shall not be
exercisable in any part during the Grantee's lifetime unless at all times
beginning with the date of grant and ending no more than three months prior to
the date of exercise the Grantee has, except for military service leave, sick
leave or other bona fide leave of absence (such as temporary employment by the
United States Government), been in the continuous employ of the Company or a
parent of subsidiary thereof, except that such period of three months shall be
extended to one year following any termination of such employment by reason of
the Grantee's permanent and total disability.
4. Restrictions on Transferability of Option. This Option may not be
transferred by the Grantee other than by will or the laws of descent and
distribution and may be exercised during the Grantee's lifetime only by the
Grantee or the Grantee's guardian or legal representative. However, if this
Option is not intended to be treated as an incentive stock option under Section
422 of the Internal Revenue Code (see Section I above) it may during the
Grantee's lifetime also be transferred to and may thereafter be exercised by
members of the Grantee's immediate family, or a partnership whose members
include only the Grantee and/or members of the Grantee's immediate family, or a
trust for the benefit of only the Grantee and/or members of the Grantee's
immediate family; but (a) any such permitted transfer shall not prevent
termination of the Option following the Grantee's termination of employment as
provided in Section 3 above, and (b) this Option shall terminate immediately if
it has been transferred to a partnership or trust as permitted above and any
person who is not a member of the Grantee's immediate family becomes a member of
such partnership or a beneficiary of such trust, As used herein, the Grantee's
immediate family includes only the Grantee's spouse, parents or other ancestors,
and children and other direct descendants of the Grantee or of the Grantee's
spouse (including such ancestors and descendants by adoption).
5. Adjustments and Corporate Reorganizations. If the outstanding shares
of stock of the class then subject to this Option are increased or decreased, or
are changed into or exchanged for a different number or kind of shares or
securities or other forms of property (including cash) or rights, as a result of
one or more reorganizations, recapitalizations, spin-offs, stock splits, reverse
stock splits, stock dividends or the like, appropriate adjustments shall be made
in the number and/or kind of shares or securities or other forms of property
(including cash) or rights for which this Option may thereafter be exercised,
all without any change in the aggregate exercise price applicable to the
unexercised portions of this Option, but with a corresponding adjustment in the
exercise price per share or other unit. No fractional share of stock shall be
issued under this Option or in connection with any such adjustment. Such
adjustments shall be made by or under authority of the Company's board of
directors whose determinations as to what adjustments shall be made, and the
extent thereof, shall be final, binding and conclusive.
<PAGE>
Upon the dissolution or liquidation of the Company, or upon a
reorganization, merger or consolidation of the Company as a result of which the
outstanding securities of the class then subject to this Option are changed into
or exchanged for property (including cash), rights or securities not of the
Company's issue, or any combination thereof, or upon a sale of substantially all
the property of the Company to, or the acquisition of stock representing more
than eighty percent (80%) of the voting power of the stock of the Company then
outstanding by, another corporation or person, this Option shall terminate,
unless provision be made in writing in connection with such transaction for the
assumption of this Option, or the substitution for this Option of an option
covering the stock of a successor employer corporation, or a parent or a
subsidiary thereof, with appropriate adjustments in accordance with the
provisions hereinabove in this Section entitled "Adjustments and Corporate
Reorganizations" as to the number and kind of shares optioned and their exercise
prices, in which event this Option shall continue in the manner and under the
terms so provided.
If this Option shall terminate pursuant to the next preceding paragraph,
the Grantee or other person then entitled to exercise this Option shall have the
right, at such time prior to the consummation of the transaction causing such
termination as the Company shall designate, to exercise the unexercised portions
of this Option, including the portions thereof which would, but for this Section
entitled "Adjustments and Corporate Reorganizations," not yet be exercisable.
6. Exercise, Payment For and Delivery of Stock. This Option may be
exercised by the Grantee or other person then entitled to exercise it by giving
four business days' written notice of exercise to the Company specifying the
number of shares to be purchased and the total purchase price, accompanied by a
check to the order of the Company in payment of such price. If the Company is
required to withhold on account of any federal, state or local tax imposed as a
result of such exercise, the notice of exercise shall also be accompanied by a
check to the order of the Company in payment if the amount thus required to be
withheld.
7 Alternative Payment with Stock. Notwithstanding the foregoing
provisions requiring payment by check, if stock of the class then subject to
this Option is then Publicly Traded, payment of such purchase price or any
portion thereof may also be made in whole or in part with shares of the same
class of stock as that then subject to this Option, surrendered in lieu of the
payment of cash concurrently with such exercise, the shares so surrendered to be
valued on the basis of the Fair Market Value of the stock on the date of
exercise, in which event the stock certificates evidencing the shares so to be
used shall accompany the notice of exercise and shall be duly endorsed or
accompanied by duly executed stock powers to transfer the same to the Company;
provided, however, that such payment in stock instead of cash shall not be
effective and shall be rejected by the Company if (a) the Company is then
prohibited from purchasing or acquiring shares of the class of its stock thus
tendered to it, or (b) the right or power of the person exercising the Option to
deliver such shares in payment of the purchase price is subject to the prior
interests of any other person (excepting the Company) as indicated by legends
upon the certificate(s) or known to the Company. If the Company rejects the
payment in stock, the tendered notice of exercise shall not be effective
hereunder unless promptly after being notified of such rejection the person
exercising the Option pays the purchase price in acceptable form. If and while
payment with stock is permitted in accordance with the foregoing provision, the
person then entitled to exercise this Option may, in lieu of using previously
outstanding stock therefor, use some of the shares as to which this Option is
then being exercised, in which case the notice of exercise need not be
accompanied by any stock certificates but shall include a statement directing
the Company to retain so many shares that would otherwise have been delivered by
the Company upon that exercise of this Option as equals the number of shares
that would have been surrendered to the Company if the purchase price had been
paid with previously issued stock. If the Company is required to withhold on
account of any federal, state or local tax imposed as a result of an exercise of
this Option with previously issued stock or by retention of some optioned shares
under this Section entitled "Alternative Payment with Stock," the stock
surrendered or retained shall include an additional number of shares whose Fair
Market Value equals the amount thus required to be withheld.
<PAGE>
8. Rights in Stock Before Issuance and Delivery. No person shall be
entitled to the privileges of stock ownership in respect of any shares issuable
upon exercise of this Option, unless and until such shares have been issued to
such person as fully paid shares.
9. Requirements of Law. By accepting this Option, the Grantee represents
and agrees for himself or herself and his or her transferees by will or the laws
of descent and distribution that, unless a registration statement under the
Securities Act of 1933 is in effect as to shares purchased upon any exercise of
this Option, (a) any and all shares so purchased shall be acquired for his or
her personal account and not with a view to or for sale in connection with any
distribution, and (b) each notice of the exercise of any portion of this Option
shall be accompanied by a representation and warranty in writing, signed by the
person entitled to exercise the same, that the shares are being so acquired in
good faith for his or her personal account and not with a view to or for sale in
connection with any distribution.
No certificate or certificates for shares of stock purchased upon
exercise of this Option shall be issued and delivered unless and until, in the
opinion of legal counsel for the Company, such securities may be issued and
delivered without causing the Company to be in violation of or incur any
liability under any federal, state or other securities law or any other
requirement of law or of any regulatory body having jurisdiction over the
Company.
10. Stock Appreciation Rights. The Grantee or other person entitled to
exercise this Option is further hereby granted the right ("Stock Appreciation
Right") in lieu of exercising this Option or any portion thereof to receive an
amount equal to the lesser of (a) the excess of the Fair Market Value of the
stock subject to this Option or such portion thereof over the aggregate exercise
price for such shares hereunder as of the date the Stock Appreciation Right is
exercised, or (b) 200% of the aggregate exercise price for such shares
hereunder. The amount payable upon exercise of such Stock Appreciation Right may
be settled by payment in cash or in shares of the class then subject to this
Option valued on the basis of their Fair Market Value on the date Stock
Appreciation Right is exercised, or in a combination of cash and such shares so
valued. No Stock Appreciation Right may be exercised, in whole or in part, (i)
other than in connection with the contemporaneous surrender without exercise of
this Option or the portion thereof that corresponds to the portion of the Stock
Appreciation Right being exercised, or (ii) except to the extent that this
Option or such portion thereof is exercisable on the date of exercise of the
Stock Appreciation Right by the Person exercising the Stock Appreciation Right,
or (iii) unless the class of stock then subject to this Option is then Publicly
Traded.
<PAGE>
11. Company's Right of First Purchase. While and so long as the stock of the
class subject to this Option has not been Publicly Traded for at least ninety
days, any stock issued on exercise of this Option shall be subject to the
Company's right of first purchase. By virtue of that right, (a) such stock may
not be transferred during the Grantee's lifetime to any person other than
members of the Grantee's Immediate Family, a partnership whose members are the
Grantee and/or members of the Grantee's Immediate Family, or a trust for the
benefit of the Grantee and/ or members of the Grantee's Immediate Family, unless
such transfer occurs within fifteen days following the expiration of thirty days
after the Company has been given a written notice which correctly identified the
prospective transferee or transferees and which offered the Company an
opportunity to purchase such stock at its Fair Market Value in cash, and such
offer was not accepted within thirty days after the Company's receipt of that
notice; and (b) upon the Grantee's death, the Company shall have the right to
purchase all or some of such stock at its Fair Market Value within nine months
after the date of death. This fight of first purchase shall continue to apply to
any such stock after the transfer during the Grantee's lifetime of that stock to
a member of the Grantee's Immediate Family or to a family partnership or trust
as aforesaid, and after any transfer of that stock with respect to which the
Company waived its right of first purchase without also waiving it as to any
subsequent transfers thereof, but it shall not apply after a transfer of that
stock with respect to which the Company was offered but did not exercise or
waive its right of first purchase or more than nine months after the Grantee's
death. The Company may assign all or any portion of its right of first purchase
to any one or more of its stockholders, or to a pension or retirement plan or
trust for employees of the Company, who may then exercise the right so assigned.
Stock certificates evidencing stock subject to this right of first purchase
shall be appropriately legended to reflect that right.
12. Notices. Any notice to be given to the Company shall be addressed
to the Company in care of its Secretary at its principal office, and any notice
to be given to the Grantee shall be addressed to the Grantee at the address set
forth beneath the Grantee's signature hereto or at such other address as the
Grantee may hereafter designate in writing to the Company. Any such notice shall
be deemed duly given when enclosed in a properly sealed envelope or wrapper
addressed as aforesaid, registered or certified, and deposited, postage and
registry or certification fees prepaid, in a post office or branch post office
regularly maintained by the United States Postal Service.
13. Rules of Construction. This Agreement has been executed and
delivered by the Company in the State of Florida, and shall be construed and
enforced in accordance with the laws of Florida, other than any choice of law
rules calling for the application of laws of another jurisdiction. Should there
by any inconsistency or discrepancy between the provisions of this Option and
the terms and conditions of the Executive Compensation Agreement between the
Company and the Grantee, the provisions of this Option shall prevail. The
receipt of this Option does not give the Grantee any right to continued
employment by the Company or subsidiary for any period, nor shall granting of
this Option or the issuance of shares on exercise thereof give the Company or
any subsidiary any right to the continued services of the Grantee for any
period.
<PAGE>
IN WITNESS WHEREOF, the Company has granted this Option on the date of grant
specified above.
CAMBRIDGE ENERGY CORPORATION LEE M. PAYNE
By: /s/ Perry Douglas West /s/ Lee M. Payne
- --------------------------- ------------------
Perry Douglas West, Chairman and CEO an individual
By: /s/ Lee M. Payne
- --------------------
Lee M. Payne, Exec. Vice President/ Director
CAMBRIDGE ENERGY CORPORATION
QUALIFIED EQUITY INCENTIVE STOCK OPTION PLAN
1. Purpose of the Plan
This CAMBRIDGE ENERGY CORPORATION Qualified Equity Incentive Stock Plan
("Plan") is intended to afford an incentive to key managerial employees of
CAMBRIDGE ENERGY CORPORATION (the "Company") to acquire a proprietary interest
in the Company and to enable the Company to attract and retain such key
employees. For purposes of this Plan, the Company's "parent" or "subsidiaries",
if any, shall include any corporation which is a "parent corporation" or a
"subsidiary corporation" within the meaning of Sections 425 (a) and (f) of the
Internal Revenue Code of 1986, as hereafter amended (the "Code").
2. The Stock
Except as provided in Sections 6 and 7, the number of shares of stock
which may be optioned and sold under the Plan is 4,000,000 shares of Common
Stock, $.000l par value, of the Company ("Shares"). If options granted under
this Plan shall expire or terminate for any reason without having been exercised
in full, the unpurchased Shares subject hereto shall again be available for the
granting of options under this Plan. Shares which are the subject of options to
purchase may be made available from authorized and unissued stock or from
treasury stock.
3. Eligibility
An option shall be granted only to a person who at the time of the
grant is a key managerial employee of the Company or its parent or a subsidiary
of the Company. The term "key managerial employee" shall mean an employee
(including officers), who has responsibility for the management of the Company
or its parent or subsidiaries. The committee designated pursuant to Section 8
("Committee") shall determine from time to time the key managerial employees to
whom options shall be granted and the number of Shares subject to each option.
Notwithstanding the foregoing, options for not more than _________ shares may be
issued under the Plan to a Chairman, President or Executive Vice President of
the Company or its parent or subsidiaries, options for not more than _________
shares may be issued under the Plan to any Senior Vice President of the Company
or its parent or subsidiaries, options for not more than _________ shares may be
issued under the Plan for any Vice President of the Company or its parent or
subsidiaries, and options for not more than _________ shares may be issued under
the Plan for any other employee of the Company or its parent or subsidiaries.
4. Option Term
(a) Except as otherwise provided herein, the Option Price shall be
fixed by the Committee at the time of the grant of such option and shall not be
less than 100% of the fair market value of the stock at the time the option is
granted. The Committee shall, in good faith, determine the fair market value of
the stock (without regard to any restrictions other than a restriction which, by
its terms, will never lapse) based upon a reasonable method of valuation adopted
by the Committee, or such other method as may be permitted by the Code, or
regulations or rulings promulgated thereunder. In no event shall the Option
Price be less than the par value of the Shares. The Committee will use its best
efforts to determine the fair market value of the Shares subject to the option,
but neither the Committee nor the Company will be responsible for the payment of
any tax imposed upon the participants, nor will they reimburse participants for
their payment of any tax so imposed. Neither the Company, the Committee nor any
member thereof makes or shall make any representation or warranty to any
participant regarding the Federal or State income tax consequences or effects of
participation in the Plan.
<PAGE>
(b) Subject to the provisions and limitations of this Plan, and
subject to applicable securities, tax and other laws and regulations, options
may be granted at such time or times and pursuant to such terms and conditions
as may be determined by the Committee during the period this Plan is in effect.
(c) Each Option shall provide that it may be exercised in not less
than such number of equal installments which may be cumulative between three and
six in number as shall be set forth in the Stock Option Agreement for such
Option, commencing from the date set forth in the Stock Option Agreement for
such Option; provided, however, that no option shall be exercised in full or in
part after the expiration of ten (10) years from the date such option is
granted. However, if the option is granted to an individual who at the time the
option is granted owns stock possessing more than ten (10%) percent of the total
combined voting power of all classes of stock of the Company or its parent or
subsidiary, such option shall not be exercisable in full or in part after the
expiration of five (5) years from the date such option is granted. Except as
otherwise specifically provided in the Stock Option Agreement between the
Company and the employee, options which have been granted to an employee will
continue to be exercisable only so long as the optionee remains an employee of
the Company or its parent or a subsidiary of the Company. Notwithstanding
anything to the contrary contained in this Section 4, the Committee may, in its
sole discretion, accelerate the option exercise period, based upon its
evaluation of an optionee's individual performance, as limited by subparagraph
(d) hereof.
(d) Shares to be purchased upon the exercise of any option shall be
paid for, in full, in cash or by certified check payable to the order of the
Company (or in certificates of stock issued by the Company, which stock shall be
assigned a fair value by the Committee in its discretion) and delivered to the
Company at the time of such exercise.
(e) Each Option granted under the Plan shall be evidenced by a Stock
Option Agreement between the Company and the employee. The Committee shall
initially make all decisions as to the form of Stock Option Agreement to be
entered into with each optionee. All forms of Stock Option Agreement shall
contain such provisions, restrictions and conditions as are not inconsistent
with this Plan but need not be identical. The provisions of this Plan shall be
set forth in full or incorporated by reference in each Stock Option Agreement.
(f) Except as otherwise specifically provided in the Stock Option
Agreement between the Company and the employee, in the event an optionee retires
or otherwise ceases to be employed by the Company or its parent or any
subsidiary of the Company for any reason, including leaves of absences (other
than a termination by death, permanent and total disability within the meaning
of Section 22 (a) (3) of the Code, or for cause), such employee shall have the
right to exercise any options which became exercisable prior to retirement or
cessation of employment but only within a period of three (3) months from the
date of cessation of employment (but in any event not later than the termination
date of the option), after which time any unexercised portion of all outstanding
options shall expire. If the optionee dies during such three-month period, the
executors, administrators, legatees or distributees of the optionee's estate
shall have the right to exercise such options during the remainder of such
period. In no event and under no circumstances may an option be exercised by an
employee (or his personal representative) after termination of the optionee's
employment for cause. Notwithstanding the foregoing provisions of this Section 4
(f), the Stock Option Agreement between the Company and the employee may provide
that upon the cessation of the employment of such employee, such employee shall
have the right to exercise any options granted to the employee but only within a
period of three (3) months from the date of cessation of employment (but in any
event not later then the termination date of the option).
<PAGE>
(g) In the case of an employee who becomes permanently disabled within
the meaning of Section 22 (a) (3) of the Code while in the employ of the
Company, or its parent or any subsidiary of the Company, any option which was
exercisable on the date when such employee became disabled may be exercised
within one (1) year after such employee ceases employment (but in no event later
than the termination date of the option) after which time any unexercised
portion of all outstanding options shall expire.
(h) In the event of the death of an optionee while in the employ of the
Company, its parent or any subsidiary of the Company, the executors,
administrators, legatees or distributees of the estate of the optionee shall
have the right to exercise any options which became exercisable prior to the
optionee's death but only within a period of three (3) months from the date of
the optionee's death (but in no event later than the termination date of the
option), after which time any unexercised portion of all outstanding options
shall expire. In the event an option is exercised by the executors,
administrators, legatees or distributee of the estate of the optionee, under
Subsection (f) or (h) of this Section 4, the Company shall be under no
obligation to issue Shares hereunder unless and until the Company is satisfied
that the person (or persons) exercising the option is the duly appointed legal
representative of the optionee's estate or the proper legatee or distributes
thereof.
5. Non-Transferability
No option granted hereunder shall be transferable by the optionee other
than by Will or by the laws of descent and distribution, and options shall be
exercisable, during the optionee's lifetime, only by such optionee provided,
however, that in the event an optionee shall be subject to a legal disability,
his legal representative may exercise an option on his behalf.
6. Stock Dividends or Recapitalization
In the event of a stock dividend paid in shares of the class of stock
subject to any option outstanding hereunder, or recapitalization,
reclassification, splitup or combination of shares with respect to said class of
stock, the Committee shall make appropriate adjustments to the Option Price
under such option and to the kind and number of shares as to which such option
is then exercisable, to the end that the optionee's proportionate interest shall
be maintained as before the occurrence of such event, and in any case an
appropriate adjustment shall also be made in the total number and kind of event,
and in any case an appropriate adjustment shall also be made in the total number
and kind of shares of stock reserved for the future granting of options under
this Plan. Any such adjustment made by the Committee pursuant to this Plan shall
be binding upon the holders of all unexpired options outstanding hereunder.
7. Merger, Consolidation Reorganization, Liquidation, Etc.
If the Company shall become a party to any corporate reorganization,
merger, liquidation, spinoff, or agreement for the sale of substantially all of
its assets and property, the Committee shall make appropriate arrangements,
which shall be binding upon the holders of unexpired options rights, for the
substitution of new options for any unexpired options then outstanding under
this Plan, or for the assumption of any such unexpired options, to the end that
the optionee's proportionate interest shall be maintained as before the
occurrence of such event.
<PAGE>
8. Administration of Plan
(a) This Plan shall be administered by the Executive Compensation
Committee (the "Committee") appointed by the Board of Directors. The Committee
shall consist of a minimum of 2 and a maximum of 3 members of the Board of
Directors, each of whom shall be a "disinterested person" as defined in Rule
16b-3 under the Securities Exchange Act of 1934. The Committee shall, in
addition to its other authority and subject to the provisions of this Plan, have
authority in its sole discretion to determine who are the officers and key
employees of the Company or any parent or subsidiary of the Company eligible to
receive options under this Plan; which officers and key employees shall in fact
be granted an option or options; whether the option shall be an incentive stock
option or a nonqualified stock option; the number of Shares to be subject to
each of the options; the time or times at which the options shall be granted;
and, subject to Section 4 hereof, the price at which each of the options is
exercisable, the rate of option exercisability; and the duration of the option.
(b) The Committee shall adopt such rules for the conduct of its
business and administration of this Plan as it considers desirable. A majority
of the members of the Committee shall constitute a quorum for all purposes. The
vote or written consent of a majority of the members of the Committee on a
particular matter shall constitute the act of the committee on such matter. The
Committee shall have the exclusive right to construe the Plan and the options
issued pursuant to it, correct defects, supply omissions and reconcile
inconsistencies to the extent necessary to effectuate the Plan and the options
issued pursuant to it, and such action shall be final, binding and conclusive
upon all parties concerned. No member of the Committee or the Board of Directors
shall be liable for any act or omission (whether or not negligent) taken or
omitted in good faith, or for the exercise of authority or discretion granted in
connection with this Plan to the Committee or the Board of Direction, or for the
acts or omissions of any other members of the Committee or the Board of
Directors. Subject to the numerical limitations on Committee membership set
forth in Subsection B(a) hereof, the Board of Directors may at any time appoint
additional members of the Committee and may at any time remove any member of the
Committee with or without cause. Vacancies in the Committee, however caused, may
be filled by the Board of Directors if it so desires.
9. Effective Date
This Plan shall become effective upon adoption by the Board of
Directors, subject to the approval by holders of a majority of the Common Shares
present in person or by proxy and entitled to vote at the Annual Meeting of
Shareholders. Options may be granted under the Plan prior to receipt of such
approval, provided that, in the event such approval is not obtained, the Plan
and all Options granted under the Plan shall be null and void and of no force
and effect.
10. Modification, Amendment, Suspension and Termination
Unless sooner terminated, this Plan shall expire ten (10) years from
the date the Plan is adopted by the Board of Directors, or from the date of
shareholder approval, whichever is earlier. The Plan may be altered, suspended,
discontinued or terminated by the Board of Directors at any time, but no action
of the Board of Directors, unless approved by the shareholders, may increase the
maximum number of shares to be offered for sale or issued under the Plan (except
as permitted under Sections 6 and 7 above), change the manner of determining the
minimum option price or the price of outstanding options or terms of payments,
extend the term of the Plan or the period during which options may be granted or
exercised, or change the description of the class of persons eligible to receive
options under the Plan. Nothing contained herein shall be construed to permit a
termination, modification or amendment adversely affecting the rights of any
optionee under an existing option theretofore granted without the consent of
such optionee.
<PAGE>
11. General
(a) Nothing contained in this Plan or any option granted pursuant to
this Plan shall confer upon any employee the right to continue in the employ of
the Company or its parent or subsidiary or any other corporation affiliated with
the Company, or interfere in any way with the rights of the Company or its
parent or subsidiary or any corporation affiliated with the Company to terminate
his or her employment.
(b) Corporate action constituting an offer of stock for sale to any
employee under the terms of the options to be granted hereunder shall be deemed
completed as of the date when the Committee authorizes the grant of the option
to the employee, regardless of when the option is actually delivered to the
employee or acknowledged or agreed to by the employee.
(c) The provisions of this Plan shall be binding upon and inure to the
benefit of the parties and their respective heirs, executors, administrators,
personal representatives, successors and permitted assigns.
(d) Wherever used herein, the singular shall be deemed to refer to and
include the plural and vice versa, where appropriate. Wherever used herein, the
masculine shall be deemed to refer to and include the feminine and the neuter,
and vice versa, where appropriate.
(e) Nothing contained in this Plan or in any option agreement issued
hereunder shall impose any liability or responsibility on the Company, the Board
of Directors, the Committee or any member of either of the foregoing to pay, or
reimburse any participant for the payment of any tax arising out of, or on
account of the issuance of an option or options hereunder to any participant, a
participant's exercise of any option issued under this Plan or a participant's
sale, transfer or other disposition of any Shares acquired pursuant to the
exercise of an option issued hereunder. Any person receiving an option hereunder
shall expressly acknowledge and agree that such participation is voluntary and
that the participant will be solely responsible for all taxes to which he or she
may be or become subject as a consequence of such participation.
(f) As a condition to the exercise of any Option, the Company may
require that an employee satisfy, through withholding from other compensation or
otherwise, the full amount of all federal, state and local income and other
taxes required to be withheld in connection with such exercise.
