HOUSTON OPERATING CO, 10SB12G, EX-10.2, 2000-09-18

HOUSTON OPERATING CO
10SB12G, EX-10.2, 2000-09-18
BUSINESS SERVICES, NEC

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United States District Court
Southern District of Texas
FILED
SEP 21 1989
Jesse E. Clark, Clerk

UNITED STATES BANKRUPTCY COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION

In Re:

CAMBRIDGE OIL COMPANY )
AKA NEW CAMBRIDGE CORPORATION ) Case No. 88-01859-H5-11
a Delaware Corporation, ) (Chapter 11)
)
Debtor )
---------------------------------- )

DISCLOSURE STATEMENT OF CAMBRIDGE OIL COMPANY,
DEBTOR IN POSSESSION, AND NORMANDY OIL AND GAS COMPANY, INC.
AND ITS WHOLLY OWNED SUBSIDIARY, HOUSTON OPERATING COMPANY
SUCCESSOR TO THE DEBTOR UNDER THE PLAN

DATED: FILED BY:

DISCLOSURE STATEMENT

This Disclosure Statement ("Statement") has been prepared by Cambridge Oil
Company, (" Debtor"), and Normandy Oil and Gas Company and its wholly owned
subsidiary, Houston Operating Company, which together constitute the Successor
to Debtor under the Plan ("Successor"). The United States District Court for the
Southern District of Texas, Houston Division in Bankruptcy ("Court") located in
Houston, Texas has approved this Statement which approval does not constitute a
determination on the merits of the Plan of Reorganization ("Plan") attached
hereto as Exhibit 1 and described in this Disclosure Statement. The approval of
the Statement means that the Court has found that the Statement contains
adequate information to permit a creditor or shareholder of Debtor to make a
reasonably informed decision in exercising their right to vote upon the Plan.

<PAGE>
INTRODUCTION

Debtor filed its voluntary Chapter 11 petition with the Court on February
29, 1988. On September 21, 1989, Debtor and the Successor filed the Plan and
Statement. The Statement analyzes the proposed distribution to Debtor's
creditors and shareholders under the Plan and in liquidation. The Statement is
being mailed to all known creditors, partners, and shareholders of the Debtor
for the purpose of disclosing that information which the Court has determined is
material, important and necessary for such creditors and shareholders to arrive
at a reasonably informed decision in exercising their right to vote upon the
Plan. The Statement describes various transactions contemplated under the Plan.
A copy of the Plan is attached hereto as Exhibit 1. You are urged to study the
Plan in full and to consult your counsel about the Plan and its impact,
including possible tax consequences, upon your legal rights. Please read the
Statement and the Plan carefully before voting on the Plan.

BRIEF EXPLANATION OF CHAPTER 11

Chapter 11 is the principal reorganization Chapter of the Bankruptcy Code
("Code"). Pursuant to Chapter 11, the Debtor's business affairs may be
reorganized for the benefit of its creditors, shareholders and other interested
parties. Formulation and confirmation of the Plan is the principal means for
satisfying the claims and interests of the creditors and shareholders in a
Chapter 11 case. Attempts at collection of pre-petition claims against the
Debtor, and any attempts to foreclose upon the property

<PAGE>

of the Debtor, are stayed during the pendency of the reorganization process.

The Court has scheduled a hearing on Confirmation of the Plan. The date and
time of said hearing is set forth in the Bankruptcy Court's Order which
accompanies this Statement. The confirmation hearing will be held at 515 Rusk,
Fourth Floor, Room ___, Houston, Texas. At the hearing, the Bankruptcy Court
will consider whether the Plan satisfies the various requirements of the
Bankruptcy Code. If the Court orders Confirmation of the Plan, the Debtor will
be discharged pursuant to 11 U.S.C. Section 1141 (d) from all prepetition debts
except as provided in the Plan. Confirmation makes the Plan binding upon the
Successor and the Debtor, all stockholders of the Debtor, all creditors of the
Debtor and all other parties in interest.

SOLICITATION OF ACCEPTANCES OR REJECTIONS FROM

CREDITORS AND SHAREHOLDERS

By transmission of this Statement, Debtor and the Successor solicit
acceptance or rejection of the Plan from all parties, persons, or entities who
are members of the various Classes as defined in the Plan. Each Class whose
rights are in some way impaired by the Plan constitutes a separate Class for
voting and distribution purposes under the Plan. The Plan can be confirmed by
the Court and therefore become binding on all creditors and shareholders if the
Plan is accepted by: (i) two-thirds (2/3) in dollar amount and a majority in
number of the allowed creditor claims in each impaired Class who cast a vote to
accept or reject the Plan,

<PAGE>

and (ii) by the holders of at least two-thirds (2/3) of the total number of
shares of Common and Preferred Stock of the Debtor voting to accept or reject
the Plan. However, the Bankruptcy Code provides that the Plan may be confirmed
by the Court notwithstanding the fact that an impaired Class or Classes has
failed to accept the Plan so long as at least one impaired Class has accepted
the Plan. Finally, the Plan can only be confirmed by the Court if the Court
finds the Plan meets the standards for confirmation as set forth in Section 1129
(a) of the Bankruptcy Code.

A ballot is being transmitted to all impaired creditors and shareholders
for the purpose of voting on the Plan. The ballot may be completed and returned
by mail to: Cambridge Oil Company, 6200 Savoy, Suite 740, Houston, Texas 77036.
If an improperly executed or unexecuted ballot is returned or if no ballot is
returned at all, it will not be counted as a vote to accept or reject the Plan,
provided however, that if a ballot is filed and it fails to designate either
acceptance or rejection of the Plan, such ballot shall be deemed to accept the
Plan.

OFFER OF SECURITIES UNDER THE PLAN

The Plan contemplates that upon its confirmation, securities of the
Successor shall be issued to certain of the Debtor's creditors and shareholders
under the Plan. Recipients of securities of the Successor under the Plan are
urged to review the following carefully:

THE OFFER OF SECURITIES AS PROVIDED IN THE PLAN SHALL CONSTITUTE A PUBLIC
OFFERING AS PROVIDED IN SECTION 1145(c) OF THE BANKRUPTCY

<PAGE>

CODE [11 U.S.C. SECTION 1145(c)]. A REGISTRATION STATEMENT RELATING TO THE
SECURITIES TO BE ISSUED UNDER THE PLAN WILL NOT BE FILED WITH UNITED STATES
SECURITIES AND EXCHANGE COMMISSION. THE ISSUANCE SECURITIES UNDER THE PLAN IS
EXEMPT FROM REGISTRATION WITH THE UNITED STATES SECURITIES AND EXCHANGE
COMMISSION AS PROVIDED IN SECTION 1145(a) OF THE BANKRUPTCY CODE [11 U.S.C.
SECTION 1145(a)]. THIS STATEMENT HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THE STATEMENTS CONTAINED HEREIN.

UNTIL FORTY 40) DAYS AFTER THE FIRST DISTRIBUTION OF SECURITIES UNDER THE PLAN,
ALL DEALERS EFFECTING TRANSACTIONS IN THE SECURITIES TO BE DISTRIBUTED UNDER THE
PLAN SHALL AT THE TIME OF OR PRIOR TO THE TRANSACTION DELIVER TO THE PURCHASER A
COPY OF THIS STATEMENT. THE DELIVERY OF THE STATEMENT SHALL NOT IMPLY THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE DEBTOR OR THE SUCCESSOR SINCE THE DATE
HEREOF.

NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR MAKE ANY REPRESENTATIONS (PARTICULARLY AS TO THE FUTURE VALUE OF SECURITIES
TO BE ISSUED UNDER THE PLAN) OTHER THAN THOSE CONTAINED IN THIS STATEMENT. ANY
INFORMATION OR REPRESENTATION NOT HEREIN CONTAINED, IF GIVEN OR MADE, MUST NOT
BE RELIED UPON.

<PAGE>

PURSUANT TO SECTION 1125 (E) OF THE BANKRUPTCY CODE [11 U.S.C. SECTION 1125 E)],
ANY PERSON INCLUDING THE DEBTOR, THE SUCCESSOR AND THEIR ATTORNEYS, ACCOUNTANTS,
EMPLOYEES, OFFICERS AND DIRECTORS THAT SOLICITS OR PARTICIPATES IN GOOD FAITH
AND IN COMPLIANCE WITH THE APPLICABLE PROVISIONS OF THE BANKRUPTCY CODE [11
U.S.C. SECTION 101 ST SEQ] IN THE OFFER OF SECURITIES UNDER THE PLAN OF
REORGANIZATION DESCRIBED HEREIN SHALL NOT BE LIABLE ON ACCOUNT OF SUCH
SOLICITATION OR PARTICIPATION FOR VIOLATION OF ANY APPLICABLE LAW, RULE, OR
REGULATION ENACTED BY THE UNITED STATES OR ONE OF ITS STATES GOVERNING THE
OFFER, ISSUANCE, SALE, OR PURCHASE OF SECURITIES.

THIS STATEMENT MAY NOT BE RELIED UPON FOR ANY PURPOSE OTHER THAN TO DETERMINE
HOW TO VOTE ON THE PLAN, AND NOTHING CONTAINED IN IT SHALL CONSTITUTE AN
ADMISSION OF ANY FACT OR LIABILITY BY ANY PARTY. THIS STATEMENT SHALL NOT BE
DEEMED CONCLUSIVE ADVICE ON THE TAX OR OTHER LEGAL EFFECTS OF THE REORGANIZATION
ON HOLDERS OF CLAIMS OR INTERESTS.

THE INFORMATION CONTAINED IN THIS STATEMENT, OTHER THAN THE FINANCIAL STATEMENTS
INCLUDED IN EXHIBITS 4 AND 5, HAS NOT BEEN SUBJECT TO AN INDEPENDENT AUDIT AND
DEBTOR AND THE SUCCESSOR ARE UNABLE TO WARRANT THAT THE INFORMATION CONTAINED
HEREIN IS WITHOUT INACCURACY HOWEVER, EVERY EFFORT HAS BEEN MADE TO PROVIDE
ACCURATE INFORMATION

THE DATE OF THE STATEMENT IS SEPTEMBER 21, 1989

<PAGE>

TABLE OF CONTENTS

I. HISTORY, BACKGROUND, AND BUSINESS OF DEBTOR

(A.) HISTORY
(B.) BUSINESS OF DEBTOR
(C.) ASSETS AND PROPERTIES OF DEBTOR

(1) Oil and Gas Properties
(2) Accounts Receivable from Oil and Gas Sales
(3) Accounts Receivable from Joint Interest Billings
(4) Accounts Receivable from Partnerships
(5) Office Furniture and Equipment
(6) All Other Assets

(D.) LITIGATION

(1) Huggins
(2) Texas Trinity

(E.) REASON FOR FILING

II. POST-PETITION EVENTS AND BUSINESS OPERATIONS

III. SUMMARY OF THE PLAN

(A.) CLASSES OF CLAIMS AND INTERESTS
(B.) SUMMARY OF TREATMENT OF CLASSES UNDER THE PLAN
(C.) SUMMARY OF OTHER PROVISIONS OF THE PLAN

(1) Means for Execution of the Plan
(2) Cram Down
(3) General Provisions
(4) Provision for Assumption or Rejection of Executory Contracts
(5) Retention of Jurisdiction

IV. CONDITIONS PRECEDENT

V. VOTING INSTRUCTIONS

VI. ACCEPTANCE AND CONFIRMATION OF THE PLAN

(A.) BEST INTERESTS TEST (MINIMUM VALUE)
(B.) FEASIBILITY

(1) Common Stock
(2) Cash Payments Immediately After Confirmation and on the Effective
Date
(3) Sources of Funds for Cash Payments
(4) Deferred Cash Payments

(C.) ACCEPTANCE
(D.) CONFIRMATION WITHOUT ACCEPTANCE BY ALL IMPAIRED CLASSES
(E.) CLASSIFICATION OF CLAIMS AND INTERESTS
(F.) CONFIRMATION HEARING
(G.) EFFECT OF CONFIRMATION
(H.) EFFECTIVE DATE OF THE PLAN

<PAGE>

VII. ALTERNATIVES TO THE PLAN

VIII.DESCRIPTION OF NORMANDY OIL & GAS COMPANY, INC., HOUSTON OPERATING COMPANY
AND SECURITIES TO BE ISSUED

(A.) DESCRIPTION OF NORMANDY

(1) Description of Business
(2) Customers and Markets
(3) Employees
(4) Properties and Production
(5) Officers and Directors
(6) Further Information (10-K)

(B.) OFFER ISSUANCE AND RESALE OF PLAN SECURITIES AND RELATED SECURITIES
MATTERS
(C.) DESCRIPTION OF PLAN SECURITIES

(1) Participation Rights
(2) Warrants
(3) Houston Operating Company Common Stock
(4) Normandy Common Stock

IX. INCOME TAX CONSEQUENCES

X. EFFECT OF U.S. SECURITIES LAWS

XI. CONCLUSION
EXHIBITS

(1) PLAN OF REORGANIZATION

Schedule 1 - Warrant Agreement
Schedule 2 - Series A Participation Rights
Schedule 3 - Agreement and Undertaking

(2) LIQUIDATION ANALYSIS

(3) PRO FORMA BALANCE SHEETS AND CASH FLOW PROJECTIONS

(4) NORMANDY OIL & GAS SEC FORM 10K FOR THE YEAR ENDED JUNE 30, 1988

(5) DEBTOR AUDITED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31,
1988 AND 1987

(6) RESERVE REPORT OF INDEPENDENT PETROLEUM ENGINEER AT JANUARY 1, 1989

(7) LIST OF CAMBRIDGE WELLS

(8) CERTIFICATE OF INCORPORATION OF HOUSTON OPERATING

(9) SUMMARY OF DEBTOR'S SCHEDULES REFLECTING POSTPETITION CHANGES

(10) SUMMARY OF DEBTOR'S TRANSACTIONS SINCE FILING

<PAGE>
I. HISTORY, BACKGROUND AND BUSINESS OF DEBTOR

(A.) HISTORY

Cambridge Oil Company maintains its executive offices at 6200 Savoy, Suite
740, Houston, Texas 77036, telephone number (713) 975-1272. The Company is
engaged in the exploration for, and development, production and sale of, oil and
gas. Unless the context otherwise requires, as used herein the term "Company" or
the term "Debtor", respectively, refers to Cambridge Oil Company, (formerly New
Cambridge Corporation), its predecessors, and its subsidiaries.

New Cambridge Corporation was incorporated in the State of Delaware on
December 6, 1983. The aggregate number of authorized shares of Stock which New
Cambridge Corporation had authority to issue was 75,010,000, of which 75,000,000
shares were designated as Common Stock and 10,000 shares were designated as
Preferred Stock. At December 31, 1983, New Cambridge Corporation had not issued
any shares of the Common or Preferred Stock.

New Cambridge Corporation engaged in no business operations other than
organizational activities from the date of incorporation (December 6, 1983)
through December 31, 1983. At December 31, 1983, New Cambridge Corporation had
no assets or liabilities. No income had been received and no costs had been
incurred through that date.

On December 6, 1983, the New Cambridge Corporation entered into an
agreement and plan of merger and consolidation with Cambridge Oil Company (a
Delaware corporation) for clarity, hereinafter

<PAGE>
referred to as "Old Cambridge", and Oklahoma Industrial Energies, Inc. (an
Oklahoma corporation) hereinafter referred to as "OlE". Under terms of the
merger and consolidation, each OlE shareholder received one share of New
Cambridge Corporation Common Stock for each share of Oklahoma Industrial
Energies, Inc. Stock and each shareholder of Old Cambridge received 9.008 shares
of New Cambridge Corporation Common Stock for each share of Old Cambridge Common
Stock. In addition outstanding options and warrants to purchase shares of Old
Cambridge Common Stock and all outstanding debentures convertible into shares of
Old Cambridge were adjusted to provide for the issuance of 9.008 shares of New
Cambridge Corporation Stock for each share of Old Cambridge Common Stock
issuable upon exercise of conversion thereof.

On February 24, 1984, Old Cambridge Oil Company was merged with OlE. On
this effective date, all the assets and liabilities of Old Cambridge Oil Company
and Oklahoma Industrial Energies, Inc. were transferred into New Cambridge
Corporation in consideration of newly issued stock of New Cambridge Corporation.
New Cambridge Corporation was formed solely for the purpose of this transaction.
Effective February 24, 1984, New Cambridge Corporation changed its name to
"Cambridge Oil Company".

OlE had been in existence since March 1959 but had been basically inactive
for most of the five years prior to the Merger. During that period, it continued
to own a small number of operating oil and gas properties located in Oklahoma
and Wyoming and a royalty interest in Texas. In addition, OlE owned an interest
in Sea-Crete

10
<PAGE>

resources of Japan, Ltd., a company involved in the extraction of minerals from
sea water.

Since November, 1977, Old Cambridge had been involved in the exploration
and drilling for oil and gas, principally through public and private drilling
funds it had sponsored: specifically four public drilling partnerships and three
private drilling funds. Old Cambridge, directly or through drilling
partnerships, had properties in Louisiana, Texas, Illinois, Oklahoma, Ohio, New
York, Mississippi and Alabama. Old Cambridge additionally owned all of the
issued and outstanding capital stock of Camoil Securities, Inc., a broker-dealer
registered with the National Association of Securities Dealers, Inc., which was
formally dissolved in December of 1984.

The Board of Directors of OlE decided that it would be in the best interest
of OlE and its stockholders to effect a Merger since OlE had been inactive for
some time and had no full-time management personnel. Because its principal
remaining properties were oil, and gas properties, it was determined that a
merger should be effected with a company in the oil and gas business having
experienced management personnel capable of raising capital. Notwithstanding the
fact that New Cambridge had substantial indebtedness after the merger when
compared to OlE's relatively debt-free balance sheet, Cambridge had cash
balances in excess of OlE's cash balances. The Merger was anticipated to result
in a public market for the stock of New Cambridge which would enable the
combined corporations to raise capital for use in its business and particularly
for the acquisition of oil and gas properties.

11
<PAGE>
Initially, the Merged Companies Cambridge Oil. Company or "Company")
managed and administered public and private partnerships "Drilling
Partnerships") to explore for and develop oil and gas.

Beginning with the relocation of the executive offices of Company to
Houston, Texas in January, 1984 and the concurrent closing of the New York
office, the Company streamlined its administrative operations and began
aggressively pursuing the acquisition and drilling of prospects for its own
account. With drilling costs substantially lower than in prior years, the gas
oversupply on a slow decline, and the renewed interest in exploration, 1984
appeared to be a good year to actively explore for oil and gas.

Management recognized that past losses of the Company's predecessors
stemmed from: (1) costs of managing and administering public drilling programs,
(2) corporate overhead costs being disproportionate to existing operations and
revenues, and (3) increased amortization rates resulting from high exploration
costs the reserves found. With these problems in mind, the following objectives
were established for the Company: reduce corporate overhead; diversify the
Company's capital base by expanding the public market for the securities of the
Company; plan for the liquidation of non-mortgage bank debt; enhance the
Company's presence and reputation in the Houston area; and increase reserves,
primarily through the generation of prospects by the Company that result in
successful wells. Further, the Company recognized the

12
<PAGE>
need to operate wells to control costs and gain exposure as an operator.

During 1984, the Company began operating wells drilled on successful
prospects. The Company served as operator for the drilling of six such wells,
three of which were completed as commercial gas wells and one of which was
completed as a commercial oil well.

During 1985, the Company participated in the drilling of thirteen wells,
twelve of which were drilled and operated by the Company. Four of these wells
were completed as commercial gas producers.

During 1986, the Company generated, funded and drilled twenty-three wells,
all of which were drilled and operated by the Company, eighteen of which were
completed as commercial producers. In addition, in 1986 the Company paid off all
remaining bank debt with the exception of $35,000 which was paid in early 1987.

During 1987, the Company participated in the drilling of twenty one wells,
fourteen of which were completed as commercial producers, and acted as Operator
for all but two wells.

Since filing its Chapter 11 petition on February 29, 1988, the Company has
not participated in the drilling of any wells.

Since 1984, the Company has utilized numerous methods to improve liquidity
and provide a consistent cash flow. The acquisition of HMG Associates in 1984,
in exchange for 1,500,000 shares of Common Stock of the Company, added assets
and cash flow to the Company. HMG had interests in oil and gas properties in 13
states.

13
<PAGE>

with major producing areas in New York, Pennsylvania, West Virginia, Texas and
Louisiana. HMG owned interests in developed acreage and in approximately 200
producing wells. Also acquired through HMG were additional interest in
approximately 65,000 acres of undeveloped acreage located in Arkansas, Florida,
Kansas, Louisiana, Michigan and Texas.

HMG experienced an increase in reserves due to successful drilling efforts
in 1984 but cash flow was offset by a decrease in ability to sell gas due to
oversupply and falling prices. The Company was approached by the operator of the
majority of the properties in which HMG had an interest, NRM Petroleum, to
acquire HMG. NRM Petroleum could administer these properties easily since they
already owned an interest in all of the same properties as HMG. The Company
accepted the acquisition offer for all of the HMG properties, both developed and
undeveloped, on October 10, 1985 with the final sales price of $101,759 based
upon an engineering reserve report dated December 15, 1985.

Additionally, Cambridge sold several undeveloped properties in Louisiana
and some producing properties in Converse County, Wyoming, Stonewall and Reagan
Counties in Texas.

Cambridge also participated with one of its working interest owners, Arend
Resources & Trading Co., S.A. in the sale of numerous properties operated by the
Company to Griffin Petroleum Co., et al. Effective with August 1, 1987
production, Arend Resources & Trading Co., S.A. and Cambridge Oil Company
jointly conveyed working interests in producing properties in Goliad,

14
<PAGE>

Victoria, Duval and Hidalgo Counties, Texas for $225,000. One-half of the
interests conveyed were conveyed from Arend's interests; the other half were
conveyed from Cambridge's interests. One-half of the proceeds were applied
against Arend's outstanding joint interest billing balance; the cash received by
the Company was used to clear up outstanding liens and some production taxes
attributable to the properties. After Griffin, et al receives net revenue
(defined as the gross oil and gas income received less all operating costs
including overhead and taxes) equal to 200% of the total purchase price,
Griffin, et al will reassign 50% of the initial interest conveyed to Griffin, et
al back to Cambridge and Arend. The Company is of the opinion that Griffin, et
al will not receive net revenue equal to 200% of its total purchase price.
Accordingly, the Company does not anticipate a reassignment of the interest
conveyed to Griffin, et al.

(B.) BUSINESS OF DEBTOR
------------------

The Company's principal products are oil and natural gas. The principal
markets for such products are those wherein the Company's oil and gas properties
are physically located, and the methods of distribution of such products are by
sale to the appropriate oil and gas gathering companies operating in the
geographic area of the Company's production.

While the Company's exploration and development operations have been
conducted in Texas, Louisiana, Oklahoma, Mississippi, Alabama, Illinois, Ohio,
New York and Wyoming, activities since 1984 have been concentrated in the Texas
Gulf Coast.

<PAGE>

The Company's operations are subject to all of the risks inherent in the
exploration for, and development of, oil and gas, including blowouts, fire and
other casualties, which could result in damage to or destruction of oil and gas
formations, producing facilities or property or possible personal injury or loss
of life. The Company maintains insurance coverage that is customary for a
company of similar size, engaged in similar operations, but losses may occur as
a result of uninsurable risks or in amounts in excess of existing insurance
coverage which could have a material adverse effect upon the Company's condition
if it is not fully insured. The Company carries substantial insurance coverage
against certain of these risks, but is not fully insured either because
insurance is not available or because the Company has elected not to purchase
insurance due to prohibitive premium costs.

The production and sale of oil and natural gas is subject to various
federal, state and local regulations. The executive and legislative branches of
the federal government have periodically proposed and considered various
programs for development and use of alternative fuels, energy conservation and
limitations on the level of crude oil imports. Numerous proposals are before
Congress and state legislatures concerning regulation and taxation of the oil
and gas industry. The Company cannot predict which of such proposals, if any,
will be enacted into law, and, if any such proposals or programs are enacted or
adopted, the effect they might have cannot be predicted accurately.

<PAGE>
For the past six years, the natural gas industry has experienced
instability primarily due to a decline in demand combined with excess gas
deliverability. Economic conditions and the availability of alternative fuels at
competitive prices are just two of the factors that have affected demand for gas
and created increased competition for markets. Many producers, pipelines and
distribution companies have lowered their prices in an attempt to maintain or
increase sales. Some gas purchasers have implemented a variety of marketing
approaches, including gas "clearinghouses" designed as a vehicle for
month-to-month spot sales and various types of special marketing programs, in an
effort to increase sales or avoid additional take-or-pay liabilities. As a
result, the Federal Energy Regulatory Commission ("FERC" has approved a variety
of special marketing programs and eased restrictions on transportation of gas to
end-users in an effort to respond to conditions in the marketplace. The market
for future gas production is unpredictable, as are the reactions of FERC or
other agencies to future events.

The Company's operations are subject to numerous laws and regulations, both
federal and state, controlling the discharge of materials into the environment
or otherwise relating to the protection of the environment. These laws and
regulations have not had a material impact on the Company's operations, but the
Company is unable to predict whether its future operations will be materially
adversely affected thereby.

17
<PAGE>

The Company competes with a large number of major oil companies,
independent oil and gas companies, individual operators and drilling programs in
the exploration for, and development and production of, oil and gas. Many such
competitors possess and employ financial and personnel resources substantially
in excess of those available to the Company and may, therefore, be able to pay
greater amounts for desirable leases and to evaluate, bid for, purchase and
define a greater number of potential producing prospects than the Company's own
financial and personnel resources permit.

As of December 31, 1988, the Company employed three people. None of the
Company's employees are represented by a union or labor organization. The
Company maintains disability, medical and hospital insurance plans for its
employees.

(C.) ASSETS AND PROPERTIES OF DEBTOR
-------------------------------

The Debtor has filed Amended Schedules B-l (real property), B-2 (personal
property) and B-3 (other property). These schedules have been amended to reflect
changes since they were initially filed on May 11, 1988, deleting any properties
disposed of through sale or properties depleted or abandoned for
noncommerciality, and revising estimates of value. Additionally, the Debtor has
attached as Exhibit 9, a Summary of the Debtor's Schedules Reflecting Post
Petition Changes. The schedules may be reviewed at the United States Bankruptcy
Court Clerk's office, 515 Rusk, Houston, Texas, between the hours of 9:00 a.m.
and 4:30 p.m., Monday through Friday.

18
<PAGE>
Assets and properties of the Debtor consist of the following:

Accounts Receivable:
Oil & Gas Sales 170,106 235,760 188,608 100,000
Joint Interest 113,880 161,114 136,947 50,000
Limited Partnerships 106,647 75,696 50,000 40,000

Oil & Gas Properties 1,586,848 1,423,120 809,202 612,011

Office Furniture, 38,572 34,726 21,230 10,000
Equipment and Vehicles

All Other Assets 55,516 63,158 61,000 32,500
-----------------------------------------------------
TOTALS $2,149,880 $2,032,333 $1,305,746 $883,270
=====================================================

In preparing estimates of fair market and liquidation values the debtor's
assets, management consulted with independent appraisers, performed physical
inspections and consulted with its financial and legal advisors. A discussion of
each of the debtor's assets and properties, together with the methods and
assumptions utilized by management for valuations, is as follows:

(1) OIL AND GAS PROPERTIES

The Company's principal asset consists of oil and gas reserves which have
been estimated by Gerald DuPont Enterprises, Inc., ("DuPont" an independent
petroleum engineering firm. The following table sets forth as of January 1, 1989
the estimated net quantities of proved developed and undeveloped oil and gas
reserves together with estimated net revenues (discounted at 20%) by field, in
which the Company has an interest and which were capable of production at June
30, 1989:

<PAGE>

PROVED DEVELOPED RESERVES

NET OIL NET GAS DISCOUNTED
RESERVES RESERVES NET REVENUE
FIELD (BBLS) (MCF) (20%)
---------------------------------------------------------------------------
Altamont-Bluebell 137 0 $1,759
North Alkek 0 29,831 18,205
Baby Face 0 212,665 110,214
Bucksnag 1,105 25,606 34,641
East Coletto Creek 0 8,894 4,116
North Fannin 0 112,946 76,752
Johns 0 1,196 2,810
Lil Miss 3,004 38,906 28,829
Maetze 0 30,208 17,430
West Maetze 0 19,448 12,839
Power Play 0 530,446 228,612
Pearsall 9,109 0 53,218
Reichert 0 73,885 48,582
Ric-John 0 5,172 5,345
Tom M 0 3,976 2,483
Willmarg 0 277,581 129,395
---------------------------------------------------
TOTAL PROVED DEVELOPED 13,355 1,370,760 $775,230
===================================================

PROVED UNDEVELOPED RESERVES

NET OIL NET GAS DISCOUNTED
RESERVES RESERVES NET REVENUE
FIELD (BBLS) (MCF) (20%)
----------------------------------------------------------------------------
North Alkek 0 23,542 $ 2,508
Bucksnag 1,062 37,253 11,735
Fletcher 0 45,535 5,189
Lil Miss 6,070 83,205 28,476
Nichols 0 117,262 60,978
Ric-John 0 21,688 18,527
---------------------------------------------------
TOTAL PROVED
UNDEVELOPED 7,672 328,485 $ 127,413
===================================================

SUMMARY-TOTALS

NET OIL NET GAS DISCOUNTED
RESERVES RESERVES NET REVENUE
(BBLS) (MCF) (20%)
----------------------------------------------------------------------------
PROVED DEVELOPED 13,355 1,370,760 $ 775,230
PROVED UNDEVELOPED 7,672 328,485 127,413
---------------------------------------------------
TOTAL 21,027 1,699,245 $ 902,643
===================================================

<PAGE>
A copy of DuPont's reserve estimates as of January 1, 1989 is attached
hereto as Exhibit 6. Wells which were not deemed to be capable of production or
which have been recommended for abandonment or have been abandoned at June 30,
1989 are reflected in this exhibit.

The estimate of oil and gas reserves were based on the most reliable
information available at the time of preparation. Data used in DuPont's
estimates has been supplied by the operators of the properties or is otherwise
accessible through various regulatory agencies such as the Railroad Commission
of Texas and the Louisiana Department of Conservation. While the reserve
estimates used in the evaluation are believed to be reasonable and correct, they
should be accepted with the understanding that reservoir performance may justify
revision.

Several methods were used to estimate reserves for the various reservoirs
studied. The particular method used for any given sand was determined by the
quality and quantity of available data. More than one method was used wherever
possible in order to increase the degree of accuracy of the final result.

Where sufficient production history was available to determine an average
rate of decline in production, the actual performance of the reservoir was used
as a basis for predicting reserves. Actual production trends were extrapolated
to an anticipated point of abandonment. This method can provide not only a
reasonable estimate of ultimate production but also a fairly reliable "life
expectancy" for the well

<PAGE>

Volumetric Analysis was based on a determination of total volume of oil
and/or gas present in the reservoir and percentage of that initial volume which
can be expected to be recovered.

The recovery factor is a variable calculated for each reservoir on the
basis of reservoir pressures and/or water, oil and gas saturations. It is an
expression of the efficiency of producing mechanism of the reservoir.

The estimate of future net revenues were established using average prices
in effect for 1988 with no future escalations except in those instances where
gas sales are being made under the terms of a contract which includes fixed and
determinable escalations. Where applicable, the effect of the Natural Gas Policy
Act of 1978 was included in determining current price as of January 1, 1989,
none of the future escalations provided for by the Act were considered to be
fixed and determinable. Operating costs, production taxes, royalties and
overriding royalties, and estimated future capital expenditures were deducted
from the estimates of future revenues to determine net revenues. These costs
were estimated based upon current costs, and were not adjusted to reflect
anticipated increases due to inflation or other factors.

The Company selected a discount factor of 20% to determine the fair market
value of the properties. This discount factor was selected for the following
reasons:

<PAGE>
The undiscounted net revenues to be received in the future do not include
any provision for the overhead and other costs associated with the management
and adminIstration of the properties.

The undiscounted net revenues to be received in the future do not include
any provision for the time value of money which was estimated at 10%.

Recent industry transactions involving the sale of oil and gas properties
have generally been in the 20-25% discount range.

To determine the fair market value at June 30, 1989, Mr. DuPont's January
1, 1989 estimates of reserve valuation were reduced to reflect production of the
wells during the six months ended June 30, 1989:

Total Oil & Gas Properties
at January 1, 1989,
discounted at 20% $ 902,643

Net Revenues for
six months ended 6/30/89 ( 93,441)
---------------
Fair Market Value at 6/30/89 $ 809,202
===============

The liquidation value of these oil and gas properties reflects additional
costs (15%) that management expects would be incurred by a Trustee, including
commissions, legal and administrative fees and trustee's fees in disposing of
the properties, and a reduction in proved undeveloped reserves to 30% of the
indicated fair market value.

Additional information concerning the Company's oil and gas properties is
included in footnotes to the audited financial statements included as Exhibit 5
to this Statement.

<PAGE>

(2) ACCOUNTS RECEIVABLE FROM OIL AND GAS SALES

The amount represents accounts receivable earned in the normal course of
business from the sale of oil and natural gas. At June 30, 1989, approximately
$125,000 of the amount due Cambridge. for oil and gas sales was in suspense with
the purchaser, Cokinos Natural Gas Co., as a result of litigation between the
Company and William 0. Huggins, III (See Litigation (I)(D)(l) for discussion).
Some of these suspended revenues due Cambridge (approximately $55,000) have been
disbursed by Cokinos to Huggins as the result of an agreement between them. In
addition, the amount shown at June 30, 1989 includes approximately $65,000 due
from North Central Oil Corporation, as reimbursement of costs of drilling and
completing a well, which is in dispute (See Litigation (I) (D) (2) for
discussion). Management is currently in the process of recovering both of these
amounts; however, it can not be determined at this time if these efforts will be
successful.

In determining the fair market value of accounts receivable from oil and
gas sales, the Company has estimated that 80% of the amounts due will ultimately
be collected. The liquidation values of these accounts receivable reflects (i)
additional costs (10%) that management would expect would be incurred by a
Trustee (including Trustee fees) in collecting the amounts due and (ii) an
estimate of the amount that might not ever be collected should the company
convert the case to a Chapter 7.

<PAGE>

(3) ACCOUNTS RECEIVABLE FROM JOINT INTEREST BILLINGS

Accounts receivable due from working interest owners for expenses incurred
by Debtor in wells operated by the Debtor. Amounts which have been determined
not to be collectable have been excluded. The primary reason for exclusion were
those cases where the well is no longer revenue producing aid the working
interest owner has refused to pay. In determining the fair market value of
accounts receivable from joint interest billings, the Company has assumed that
85% of the $161,114 due at June 30, 1989 will ultimately be paid.

The liquidation value represents management's estimate of the amount that
might ultimately be collected by a Trustee (after Trustee expenses). This
estimate is based on the fact that the accounts receivable from working interest
owners consist of amounts due from individuals rather than companies, making
collection efforts more difficult.

(4) ACCOUNTS RECEIVABLE FROM LIMITED PARTNERSHIPS

The Company is the general partner for six limited partnerships formed
during 1980-1982. In accordance with the terms of the Limited Partnership
Agreements, each partnership was dissolved effective February 29, 1988 with the
filing of the general partner's Chapter 11 petition. The general partner is
responsible to wind-up the affairs of the partnership to include, among other
things:

(1) Sale and disposal of partnership assets;
(2) Filing of final tax returns with appropriate taxing authorities;

<PAGE>

(3) Payment of outstanding obligations of the partnership;

(4) Distributing the remaining proceeds, if any, to each limited
partnership in accordance with their respective ownership position;

(5) Causing the partnerships' accountants to file a Statement of
Dissolution with respect to the final disposition of funds.

The only significant asset of the individual limited partnerships consists
of oil and gas properties which are to be sold in accordance with the respective
partnership agreements. The discounted (20%) value of these properties, as
determined by Mr. DuPont, at January 1, 1989, are as follows:

PROVED PROVED
DEVELOPED UNDEVELOPED
PARTNERSHIP RESERVES RESERVES TOTAL
----------- -------- -------- -----
80-I $ 12,416 $ 0 $ 12,416
80-II 18,244 20,484 38,728
81-I 1,251 56,906 58,157
81-II 22,679 20,232 42,911
82-I 56,342 0 56,342
82-II 53,957 0 53,957
------ - ------
TOTAL $164,889 $ 97,622 $262,511
======= ======== ========

Accounts receivable from limited partnerships represent the limited
partnership's share of expenses paid by the general partner (Debtor) on behalf
of the limited partnership. The Company is currently in the process of selling
the oil and gas properties of the limited partnerships. The partnerships'
ability to pay the amounts due the Company is limited to those proceeds received
from the sale of partnership assets, none of which has been completed. The fair
market value of these receivables was based upon management's estimate of the
amount that may ultimately be paid (after

26
<PAGE>
partnership costs and expenses) upon final disposition of partnership assets.

The liquidation values of these receivables reflects (1) additional costs
(10% that management would expect would be incurred by a trustee (including
trustee fees) in collecting the amounts due and (2) an estimate of the amount
that might not ever be collected should the company convert the case to a
chapter 7.

(5) OFFICE FURNITURE AND EQUIPMENT

At August 1, 1989, management took a physical inventory of all office
furniture and equipment, computers, desks, chairs, tables, typewriters, adding
machines, etc. The fair market value of this equipment was estimated by
management based on the age and condition of similar equipment sold in the
normal course of business over a reasonable time.

Liquidation values assume the sale, at auction, of the same equipment.

(6) ALL OTHER ASSETS

Other assets at December 31, 1988 and June 30, 1989 consisted of the
following:

HISTORICAL COST FAIR MARKET LIQUIDATION
(BOOK VALUE) VALUE VALUE
--------------------------------------------------
12/31/88 6/30/89 6/30/89 6/30/89
--------------------------------------------------
Fannin Gas Gathering $ 0 $ 0 $35,000 $31,500
System
Accounts Receivable Other 28,331 36,543 15,000 0
Prepaid Expenses 15,161 14,591 10,000 0
Deposits 10,989 10,989 0 0
Investments in Intuck 1,035 1,035 0 0
Causes of Action 0 0 1,000 1,000
--------------------------------------------------
TOTALS $55,516 $63,158 $61,000 $32,500
==================================================

27
<PAGE>

The Fannin Gas Gathering System is a small natural gas pipeline gathering
system located in Goliad County. There is disputed ownership with various third
parties as to "actual" ownership of the system. Normandy Oil and Gas Company,
Inc. is in the process of acquiring the claims of various unsecured and
third-party creditors as these claims relate to the gathering system. The
proposed acquisition of claims by Normandy will be reflected by a Motion to be
filed with this court.

Accounts receivable represent amounts due from various producers who use
the pipeline to transport their gas from the wellhead to a major gas pipeline
system.

Accounts Receivable Other represents an amount due from one of the
producers who has refused to pay the transportation fees for the use of the gas
gathering system under the pretense that the Company does not have the right to
collect such fees. The Company is in the process of addressing this dispute. The
amount that may ultimately be collected, if any, cannot be determined at this
time.

Prepaid expenses consist primarily of prepaid costs associated with
maintenance agreements and insurance. Deposits consist of rent, utility and
equipment deposits.

The Company has available various causes of action against a former
attorney and certain working interest owners. The viability of pursuing these
causes is uncertain, as is the potential outcome of any litigation that might
result and amounts that may ultimately be collected.

<PAGE>

(D.) LITIGATION

The Company is presently involved in the following legal actions:

(1) WILLIAM 0. HUGGINS, III ET AL, PLAINTIFFS V. CAMBRIDGE OIL COMPANY,
DEFENDANT, filed on January 5, 1987 in the 135th Judicial District Court of
Goliad County, Texas, Cause No. 87-1-6279. Plaintiffs in their first amended
original petition, allege that the Company breached a farmout agreement,
fraudulently withheld monies due plaintiffs under the farmout agreement and a
certain oil and gas lease, breached a fiduciary obligation to plaintiffs in
handling the monies due plaintiffs and was negligent in handling monies due
plaintiffs. Plaintiffs asked for (1) rescission and cancellation of (i) the
farmout agreement; (ii) assignments made pursuant to such agreement, and (iii) a
certain oil and gas lease, (2) actual damages of $436,000, (3) exemplary damages
of $3,000,000 for breach of fiduciary obligations, (4) exemplary damages of
$1,000,000 for malice and (5) exemplary damages of $1,000,000 for gross
negligence.

On September 23, 1987, a verdict was returned by the jury in favor of the
plaintiffs terminating the farmout agreement involved in the litigation,
terminating the assignments made pursuant to the farmout agreement, awarding
damages of $100,000 and exemplary damages of $1,500,000.

On October 21, 1987, the Court denied Cambridge Oil Company's Motion for a
judgment notwithstanding the verdict and entered a judgment based upon the
jury's findings in favor of the plaintiffs. Company counsel filed a motion for a
new trial.

<PAGE>

On January 4, 1988, the Company's request for a new trial was denied and
the plaintiff subsequently filed a Writ of Execution to post producing
properties of the Company for Sheriff's Sale. The Company subsequently filed for
protection under Chapter 11 of the Bankruptcy Code to prepare it's appeal.

Counsel was retained for the Company to pursue its appeal to the judgment
in the Texas Court of Appeals, 13th Supreme Judicial District in Corpus Christi,
Texas, Appellate Case No. 13-88-00038-CV styled Cambridge Oil Company, Appellant
VS. William 0. Huggins III, Trustee for William 0. Huggins III, Judith L.
Huggins, and Virginia Huggins May, Appellees.

An Agreed Order was entered by the Bankruptcy court on June 6, 1988
allowing the automatic stay under the Chapter 11 to be lifted so as to allow the
state court litigation to proceed through the appeals process.

The appellate cause was submitted and oral argument was allowed on October
6, 1988. Cambridge, as Appellant, cited twenty-two points of error, eighteen of
which were supported by statements, arguments and authorities pertaining to: 1)
the lack of evidence to support monetary damage recovery, 2) the absence of
legal or factual basis for any recovery in tort and 3) the insupportability of
recision remedy for non-fraud "tort"; and four of which were supported by: 1)
statements, arguments and authorities pertaining to the contract claim for
cancellation and 2) recision of partial assignments to Cambridge under the
farmout agreement.

<PAGE>

On October 5, 1987, Cambridge Oil Company filed notice of appeal through
the 13th Court of Appeals of Corpus Christi, Texas. Such appeal was subsequently
withdrawn.

Texas Trinity Energy Company additionally brought a complaint to the
Railroad Commission of Texas alleging violations pertaining to the Dreier No.
1-A Well. A hearing was held on November 18, 1987 (Oil & Gas Docket No.
2-91,621) to: 1) consider the good faith claim of title of North Central Oil
Corporation and Cambridge Oil Company to an oil and gas lease; 2) determine if
the Railroad Commission's Statewide Rules 11 and 12 were violated by North
Central Oil Corporation and Cambridge Oil Company when the subject well was
permitted, drilled and completed; 3) determine whether an exception to Statewide
Rule 37 must be obtained for the subject well and to consider the validity of
the permit issued to drill the well; 4) consider whether all production from the
subject well should be considered illegal production and be subject to makeup;
and 5) give North Central Oil Corporation and Cambridge Oil Corporation an
opportunity to appear and address the allegation of false filing concerning
failure to inform the Commission that the subject well was to be a directionally
drilled well.

On March 14, 1988, the Commission issued a Final Order in this matter,
adopting as finding of fact and conclusions of laws that: 1) proper notice was
issued to the appropriate parties and that the Railroad Commission had
jurisdiction to decide the matter; 2) that the Dreier No. 1-A Well was drilled
in violation of Statewide Rule 11 (d)(3)(B) but that there was no deliberate
attempt to

<PAGE>

On October 5, 1987, Cambridge Oil Company filed notice of appeal through
the 13th Court of Appeals of Corpus Christi, Texas. Such appeal was subsequently
withdrawn.

Texas Trinity Energy Company additionally brought a complaint to the
Railroad Commission of Texas alleging violations pertaining to the Dreier No.
1-A Well. A hearing was held on November 18, 1987 (Oil & Gas Docket No.
2-91,621) to: 1) consider the good faith claim of title of North Central Oil
Corporation and Cambridge Oil Company to an oil and gas lease; 2) determine if
the Railroad Commission's Statewide Rules 11 and 12 were violated by North
Central Oil Corporation and Cambridge Oil Company when the subject well was
permitted, drilled and completed; 3) determine whether an exception to Statewide
Rule 37 must be obtained for the subject well and to consider the validity of
the~ permit issued to drill the well; 4) consider whether all production from
the subject well should be considered illegal production and be subject to
makeup; and 5) give North Central Oil Corporation and Cambridge Oil Corporation
an opportunity to appear and address the allegation of false filing concerning
failure to inform the Commission that the subject well was to be a directionally
drilled well.

<PAGE>

file false filings or to deceive the Commission as to the Dreier No. Well being
a directionally drilled well; 3) that the subject leases were valid and in
effect when the Dreier No. 1-A Well was drilled and that both the surface and
bottomhole locations were at regular locations; 4) that Texas Trinity Energy
Company now had clear title to the subject leases; 5) that the shutting in or
reduction of production of the Dreier No. 1-A Well or the revocation of the
previously granted permit for the well would cause the waste of hydrocarbons; it
therefore being mandated that the Dreier No. 1-A Well continue to be produced at
its present levels; 6) that no violation of Statewide Rule 12 had occurred

An Order Denying Motion for Rehearing was signed by the Commission on April
18, 1988, denying Texas Trinity's motion to reopen the hearing or otherwise
preserve its complaint at the Commission.

The Company is currently entitled under its agreements with North Central
Oil Corporation to reimbursement of its costs of drilling and completing of the
well on the affected property from production revenues from this well.

(E.) REASON FOR FILING

Changing industry economics which generally adversely affected all oil and
gas producing companies had a more pronounced effect on smaller operations like
that of Debtor. The price of oil and natural gas the primary revenue of the
Debtor) has declined dramatically over the past years, illustrated as follows:

<PAGE>

Average Oil Average Gas
Price (BBL) Price (MCF)
---------- -----------
1984 $ 29.54 $ 3.68
1985 25.88 2.73
1986 13.88 1.38
1987 13.58 1.33
1988 11.03 1.12

In addition, costs and expenses for managing and administer-public drilling
programs, and costs associated with producing properties were high in
relationship to the size of the Company and could not be reduced proportionately
with the decline in revenues.

As a result, the debtor incurred losses in each of its four calender years
preceding the Chapter 11 filing as follows:

AMOUNT OF LOSS
------------------
1984 $ (344,074)
1985 (579,040)
1986 (751,771)
1987 (1,178,359)
------------------
Cumulative Total $(2,853,244)
==================

The primary reason for filing the Chapter 11 petition; however, was to
protect creditors and shareholders from the Huggins judgment, to avoid Execution
by the Sheriff of Goliad County on the company's producing properties as a
result of this Huggins judgment See Litigation (I)(D)(l)for discussion), and to
give the Company time to prepare its appeal of the Huggins judgment to the Texas
Court of Appeals.

II. POST-PETITION EVENTS AND BUSINESS OPERATIONS

Since filing its Chapter 11 petition the Company has conducted business,
for the most part, on a satisfactory basis in the ordinary course. A summary of
the Debtor's Transactions Since Filing is attached hereto as Exhibit 10.

34
<PAGE>
Significant events and events out of the ordinary course of business
include the following:

(A) Order Approving Motion for Authority to Sell an Oil and Gas Lease to
TXO Production Corporation Free and Clear of Any Interest, (order granted April
13, 1988) by which the Company conveyed all of its working interest in and to a
319.9 acre oil and gas lease located in Colorado County, Texas, reserving unto
itself a 3-1/3 percent overriding royalty interest in accordance with the
provisions of this order. TXO Production corporation paid a cash consideration
of $60,000 for this lease; $24,000 of this proceeds was used to satisfy in full
the liens and claims of Jack E. Coffman and Eldon S. West, III and $25,202.63
was used to satisfy in full the lien and claim of Kemp Geophysical Corporation.

(B) As a result of actions taken by the State of Texas against the
Company's purchasers in July 1988, Cambridge received funds attributable to gas
production from its purchasers in July, August, and September for only three of
its wells. As a result of the State of Texas action, the Company was unable to
pay the severance taxes attributable to the properties with suspended revenues.
Cambridge filed suit against the State of Texas and various first purchasers and
orders were entered by the Court in early October which released suspended funds
to the Company and the various involved royalty owners and caused taxes for the
production months of May 1988 forward to be paid from the suspended funds held
by the various first purchasers. The Company has paid severance taxes on all
production income that has been generated post-petition.

35
<PAGE>

(C) Order Approving Motion for Authority to Enter into Farmout Agreement
With Indexgeo & Associates, Inc., (granted February 13, 1989) by which the
company farmed out its interest in and to certain oil and gas leases located in
Goliad County, Texas, retaining unto itself an overriding royalty interest equal
to the difference between the lessors royalties under the oil and gas leases and
23.5% of the total net revenue interest in the leases. Additionally, the Company
retained under the farmout agreement a production payment, an overriding royalty
interest equal to 9.375% of production commencing with first production and
continuing until the revenue paid totals $26,000. In addition, Billye Stevens
Halbouty as an equity investor in the leases, received a 6% working interest in
the initial test well which will be paid by Indexgeo. Indexgeo agreed to pay all
costs associated with Court approval for the farmout motion. A Supplemental
Order to Debtor's Motion for Authority to Enter Farmout Agreement with Indexgeo
& Associates, Inc. was granted on March 20, 1989. The Supplemental Order
provided that out of the overriding royalty interest retained by the company CT
Associates, Inc., an original investor in the property that is subject to the
farmout agreement, be assigned a 2.5% overriding royalty interest in the well to
be drilled on the property subject and that Dr. Samuel Meyer, another original
investor in the subject property, be assigned a 1% overriding royalty interest
in the well to be drilled on the property.

<PAGE>

(D) Order Approving Emergency Motion for Authority to Enter Farmout
Agreement with Indexgeo and Associates, Inc., (granted April 1989) by which the
Company and various third parties who have participation rights in certain oil
and gas leases located in Goliad County, Texas, farmed out its interest in and
to these leases. The Company retained unto itself an overriding royalty interest
equal to its ownership share (22.5%) of a 3.3333% overriding royalty interest in
the leases.

(E) In conjunction with that certain Order approving Motion for Authority
to Enter into Farmout Agreement with Indexgeo & Associates, (described in (II)
(D) above), the Company entered into an Agreed Order Regarding Debtor's Use and
Disposition of Cash Collateral with CT Associates, Inc. "CT" (granted July 20,
4989). The Order provides in general that: 1) CT be provided a recordable
conveyance in and to oil and gas leases covered by the farmout (described in (D)
above); 2 the $85,000 debt owed by the company be reduced, the amount of
reduction being contingent on the status and outcome of the initial test well
drilled under the farmout and that CT's associated working interest in the
Hanley No. 1--B Well, a producing gas property in which CT has a secured claim,
be likewise reduced on the same pro rata basis; and 3) that effective with the
entering of the Order, the Company pay to CT amounts equal to their working
interest share in the Hanley No 1-B Well, net of CT's share of associated lease
operating expenses, within fifteen days of receipt of these revenues by the
Company and that these payments be applied to reduce the debt owed to CT by the
Company.

<PAGE>

(F) As the result of litigation between the Company and William 0. Huggins
III, production revenues for certain of the Company's properties have been held
in suspense. Refer to Litigation (I)(D)(1) and Accounts Receivable From Oil and
Gas Sales (I)(C)(2) in this statement for discussion.

III. SUMMARY OF THE PLAN

The following summary of the principal provisions of the Plan is qualified
in its entirety by the reference to the full text of the Plan. CREDITORS AND
EQUITY HOLDERS ARE URGED TO REVIEW CAREFULLY THE COMPLETE TEXT OF THE PLAN.

A. CLASSES OF CLAIMS AND INTERESTS
------------------------------------

The Debtor's estimate of claims does not include Priority Claims pursuant
to Section 507(a)(1) or (a)(3) which have arisen in the ordinary course of
business during the pendency of the Chapter 11 case, administrative in nature,
but which have been and will be paid, when due, in the ordinary course of
business. The Debtor has not classified these Administrative Priority Claims or
Expenses, the aggregate at June 30, 1989 being estimated at approximately
$400,000. These expenses include the fees of counsel, accountants and
consultants for the Debtor and unpaid wage claims of employees. Since such fees
and expenses and any claims pursuant to Section 507(a)(6) will be determined by
the Bankruptcy Court upon appropriate application, and since ongoing services
will be rendered by such professionals and post-petition claimants, the amount
estimated for Administrative

38
<PAGE>

Claims is based on the best information available to the Debtor and is subject
to change.

As noted above in Section I (C) Assets and Properties of the Debtor, the
Debtor has filed with the Court Amended Schedules A-l (creditors holding
priority), A-2 (creditors holding security) and A-3 (creditors having unsecured
claims without priority). These Schedules have been amended to reflect any
changes since they were initially filed on May 11, 1988, including additional
claimholders. A summary of the post petition changes in the Debtor's Schedules
is reflected in the attached Exhibit 9. These schedules are available for review
as described Section I (C).

The Plan divides the creditors and equity holders into seven general
Classes. The Classes are described as follows:

1. CLASS A

Class A Claims consist of the holders of Claims entitled to priority under
Section 507(a)(7) of the Bankruptcy Code ("Priority Tax Claims"). The holders of
Class A Priority Claims consist primarily of payroll, production, ad valorem and
other tax claims. The Debtor estimates that the aggregate of Allowed Class A
Priority Claims is approximately $347,000.

2. CLASS B

Class B consists of the Secured Claim of CT Associates, Inc. (CT). Debtor
estimates the amount of the Allowed Class B Secured Claim at $75,000 as of June
30, 1989.

<PAGE>

3. CLASS C

Class C Claims consist of all other Secured Claims, including without
limitation, any oil and gas, operators', materialmen's, mechanics' liens. The
Allowed amount of these Claims will be determined either by agreement between
the Debtor and the holders of the Class C Claims or by the Bankruptcy Court
pursuant to Section 506(a) of the Bankruptcy Code. Debtor estimates that the
aggregate amount of Allowed Class B Secured Claims is approximately $31,000.

4. CLASS D

Class D Claims consist of unsecured small claims, including unpaid
royalties, overriding royalties and working interest royalties which are or have
been reduced to $500. Debtor estimates that Class D claims aggregate
approximately $30,000. The debtor believes it is impossible to estimate the
value of those claims which will be reduced by their holders to Class D claims.
However, assuming all claims less than $5,000 were converted the total amount of
converted claims would aggregate approximately $120,000.

5. CLASS E

Class E Claims consist of the holders of all other unsecured claims,
including, without limitation, unpaid royalties, overriding royalties, working
interest royalties and other deficiency claims of secured creditors and those
arising from the rejection of executory contracts and unexpired leases. The
aggregate amount of these Claims is approximately $2,050,000.

<PAGE>

6. CLASS F

Class F Claims consist of the holders of existing shares of Preferred Stock
of Cambridge Oil Company as of 5:00 P.M. Houston Texas time, on the day
immediately preceding the Confirmation Date.

7. CLASS G

Class G Claims consist of the holders of existing shares of Common Stock of
Cambridge Oil Company as of 5:00 P.M. Houston, Texas time, on the day
immediately preceding the Confirmation Date.

B. SUMMARY OF TREATMENT OF CLASSES UNDER THE PLAN
----------------------------------------------

The Claims and Interests of the following Classes are not impaired under
the Plan and acceptance of the Plan by holders of such Claims is not required.

1. CLASS A

Each holder of an Allowed Class A Claim for Priority Taxes shall be paid in
sixty equal monthly installments, the first of which shall be paid on the
Effective Date or as soon as practicable thereafter. The succeeding installment
payments shall be paid during each of the next fifty-nine months after the
Effective Date and the installment payments shall bear interest at a rate to be
determined by reference to Section 1274(d) of the Internal Revenue Code of 1986,
or based on agreement with each respective taxing authority involved.

The Claims and Interests of the following Classes are impaired under the
Plan and acceptance of the Plan by holders of such Claims or Interests is
required.

<PAGE>

2. CLASS B

The holder of the Class B Secured Claim will receive a equal to 5.215
percent (5.215%) of the net amount of the rents, income, production and profits
received by the Debtor from the Mortgaged Property within fifteen (15) calendar
days of the Debtor's receipt of same. The net amounts of rents, income,
production profits to be remitted to the Secured Claim holder after deduction of
the lease operating expenses attributable to a seven percent (7%) working
interest. These payments will continue until: (i) the claim is satisfied in full
or (ii) the mortgaged property is deemed longer commercial.

3. CLASS C

Each holder of an Allowed Secured Materialman's Lien Claim will be paid a
lump sum on the Effective Date or forty-eight (48) monthly installments
beginning on the Effective Date in full satisfaction of their lien claim as
follows:

Lump Monthly
Sum Payment
Claim Holder and Claim Payment Amount
------------------------------------------------------------------------------

Air Equipment Rental
Materialman's lien Burns #1 $2,716.00 $70.75
Materialman's lien Swickheimer #lD 1,360.00 35.44
Materialman's lien Collins #1 1,451.00 37.79

Dowell Schlumberger
Materialman's lien Holland #6 5,453.88 113.62

Gearhart Industries, Inc.
Materialman's lien Swickheimer #lD 3,190.00 83.06

Pronto Vacuum Service
Materialman's lien Burns #1 1,450.00 37.75

<PAGE>
Schlumberger Technology Corporation
Materialman's lien Holland #6 2,250.00 58.06

White's Well Service Materialman's lien Burns #1 11,603.00 302.16

4. CLASS D

All Allowed Claims which are or have been reduced to $500 or less will be
paid 75% of the claim amount in cash on the Effective Date or as soon thereafter
as practicable, unless otherwise ordered by the Court.

5. CLASS E

Each holder of an Allowed Claim of Class E shall receive on the Effective
Date one Unit, consisting of one share of Houston Operating Company Common
Stock, one Class A Warrant and one Class B Warrant for each $10.00 of allowed
claims.

6. CLASS F

Preferred Stock shall be cancelled upon the Effective Date. Each holder of
an Allowed Preferred Stock Interest shall receive on the Effective Date one
Unit, consisting of one share of Houston Operating Company Common Stock, one
Class A Warrant and one Class B Warrant for each $100 in par value of Cambridge
Oil Company Preferred Stock.

7. CLASS G

The Common Stock shall be cancelled upon the Effective Date. Each holder of
an Allowed Common Stock Interest shall receive on the Effective Date one
Participation Right for each 80 shares of presently issued and outstanding
Cambridge Oil Company Common Stock.

<PAGE>

C. SUMMARY OF OTHER PROVISIONS OF THE PLAN.
---------------------------------------

(1) MEANS FOR EXECUTION OF THE PLAN

The Successor shall acquire all assets (including all real property and
personal property and interests of any kind) of the Debtor upon Confirmation.
The acquisition shall be accomplished by the issuance of Common Stock,
Participation Rights, and Warrants, or the payment of cash in exchange for
Allowed Claims, Allowed Secured Claims, Allowed Priority Claims and Allowed
Unsecured Claims. Cash payments on the Effective Date shall be made from the
Debtor's cash on hand at the Effective Date which shall include proceeds of a
loan of not less than $100,000 and not more than $250,000 to be made to the
Debtor by the Successor on the Effective Date whtch loan shall be secured by all
assets of the debtor. Deferred cash payments to the holders of Allowed Secured
and Priority Claims shall be made from cash on hand and income generated by the
oil and gas properties acquired by the Successor under the Plan. Sufficient
funds shall be available to fund all Plan payments. If for any reason
insufficient cash exists to make Plan payments, the Successor shall contribute
such additional cash as may be necessary.

(2) CRAM DOWN

If all of the applicable requirements for Confirmation of the Plan are met
as set forth in 11 U.S.C. Section 1129(a)(l)-(ll) except subparagraph (8), the
proponents of the Plan hereby request the Court confirm the Plan pursuant to 11
U.S.C. Section 1129(b) notwithstanding the requirements of subparagraph (8) as
the Plan is fair and equitable

<PAGE>

and does not discriminate unfairly with respect to any dissenting, impaired
Class.

(3) GENERAL PROVISIONS

The Successor shall be vested on Confirmation with ownership of all
property, including all rights and causes, of the Debtor whether tangible or
intangible including any property acquired by the Successor pursuant to the
exchange of Common Stock, Participation Rights, Warrants, and cash provided for
in the Plan and including the proceeds of the loan to be made to the Debtor on
the Effective Date, and provided however that the Debtor, shall retain the right
to bring any and all causes of action provided for in the Code and the Successor
may initiate suit to enforce such causes of action after Confirmation with the
proceeds thereof paid to Successor.

The Successor's purchase of assets in the Plan shall not subject them to
any liability for any Claim; nor shall their participation in the Plan be deemed
for any reason to be an assumption by them of any Claim or an admission by them
that they are liable for any Claim.

The payment of cash and/or the distribution of Common Stock, Participation
Rights, and Warrants, pursuant to the Plan shall be in exchange for all Claims
and/or interests in the Debtor and shall constitute full settlement, release,
discharge, and satisfaction of all such Claims, interests and liens against
property of the estate.

Either the Successor and/or the Debtor may modify the Plan prior to
Confirmation, and after confirmation only the Successor may modify the Plan in
accordance with 11 U.S.C. Section 1127(b).

<PAGE>

The entry of the Order of Confirmation shall release partners of the
Limited Partnerships, the Limited Partnerships their successors, assigns,
employees and agents, their respective successors, assigns, employees and agents
from all actions, causes of action, suits, debts, claims and demands which they
heretofore, now or hereafter possess or may possess, and their respective
successors, assigns, employees and agents, based upon or in any manner arising
from or related to the Limited Partnerships, including, without limitation, the
sale of Limited Partnership units and the negotiation of the Plan. The Limited
Partnerships shall waive and release any claims they may hold against the
Debtor.

No fractional shares of Common Stock shall be issued pursuant to the Plan.
Fractional shares shall be rounded up to the next whole share.

Nothing contained in the Plan shall affect the rights of supplier of goods
or services to oil and gas drilling sites to perfect mechanics s liens or other
such lien rights under applicable non-bankruptcy law whether the Claim arose
prior to or after the filing of Debtor's Chapter 11 case

Notwithstanding any other provision of the Plan, a Disputed Claim will be
paid in accordance with the Plan only after the Court enters its Order allowing
the Disputed Claim as an Allowed Claim such Order has become a Final Order.

Any oil or gas revenues (net of applicable expenses) suspended or
interplead since the filing date of the Chapter 11 case attributable to a
Working Interest, Overriding Royalty or Landowner's

<PAGE>

Royalty shall be paid to the holder of such interest or royalty on the Effective
Date.

Any party holding a right of setoff pursuant to 11 U.S.C. Section 553, may
exercise such right of setoff on and after the Effective Date

If the whereabouts of a party who is entitled to receive a distribution of
cash, Common Stock, Warrants or Participation Rights under the Plan, is unknown
as of the Effective Date, the cash, Common Stock, Warrants or Participation
Rights shall be escrowed for a period of six months after the Effective Date. If
at the end of the six-month period, said party's whereabouts remain unknown,
said party shall forfeit the property which would have been distributed under
the Plan to said party and such escrowed property shall be returned to the Plan
Successor.

(4) PROVISION FOR ASSUMPTION OR REJECTION OF EXECUTORY CONTRACTS

The Bankruptcy Court gives the Debtor the power, subject to the approval of
the Bankruptcy Court, to assume or reject executory contracts and unexpired
leases. If an executory contract or an unexpired lease is rejected, the other
parties to the contract or lease may claim damages by reason of rejection. The
Bankruptcy Court limits such damages in the case of leased real property. The
Debtor is not required to make a final decision concerning the acceptance or
rejection of executory Contract and unexpired lease until thirty days before the
Confirmation Date of the Plan. The Plan expressly reserves the Debtor's rights,
and the Debtor specifically does not admit that oil and gas leases are executory
contract or unexpired leases within

47
<PAGE>

the meaning of the Bankruptcy Code. Out of caution, however, provisions are made
in the Plan for Oil and Gas Leases to be assumed upon the Effective Date in the
event they are held to be executory contracts unless Debtor shall file a
schedule rejecting specific executory contracts longer than thirty days prior to
the Confirmation Date.

With respect to the operating agreements pertaining to the oil and gas
wells set forth in Exhibit 7 to the Disclosure Statement where the Debtor is the
operator at the date of the Confirmation of the Plan, the Debtor accepts such
operating agreements.

With respect to the operating agreements pertaining to the oil and gas
wells set forth in Exhibit 7 to the Disclosure Statement where the Debtor is not
the operator at the date of the Confirmation of the Plan, the Debtor assumes and
assigns to the Successor such operating agreements. Any balances due by the
Debtor to the operator of the well shall be paid by setting off net revenues
due to the Successor who shall own the interest after Confirmation.

To the extent that oil and gas leases to which the Debtor is a party or an
assignee constitute executory contracts, the Debtor assumes and assigns such oil
and gas leases to the Successor. Any unpaid royalties, overriding royalties and
working interest royalties arising from Executory Contracts assumed are being
paid pursuant to the Plan as Class D and/or Class E claims.

Subject to the reservation of all such rights, the Plan provides any
executory contracts which are described on a schedule filed on or before thirty
days prior to the Confirmation Date with the Bankruptcy Court will be rejected.
Any party in interest (as defined

48
<PAGE>

in the Bankruptcy Code) may object to the assumption or rejection of any
contract or lease.

(5) RETENTION OF JURISDICTION

The Court shall retain exclusive jurisdiction for the following purposes:

a. To determine any and all objections to the allowance of Claims, and

b. To insure the purposes and intent of the Plan are carried out, and

c. To correct any defect, cure any omission, or reconcile any
inconsistency in the Plan or the Order of the Court confirming the
Plan as may be necessary to carry out the purposes and intent of the
Plan, and

d. To enforce and interpret the terms and conditions of the Plan, and

e. To enter an Order modifying the Plan, and

f. To determine disputes raised before or after Confirmation by adversary
proceedings or contested hearings, and

g. To enter an order concluding and dismissing this Chapter 11 case.

IV. CONDITIONS PRECEDENT

This Plan is conditioned upon the Successor obtaining at least
fifty-one percent (51%) of the working interest owners' reserves.

<PAGE>

Successor intends to negotiate separately with the Company's major working
interest owners for the contractual purchase of their working interest. This
condition is necessary because the cost of administering and managing the
working interests is prohibitive to operating Company profitably. While
Successor will negotiate in good faith offer fair market values for proposed
working interest acquisitions there are no assurances that negotiations will be
successful.

V. VOTING INSTRUCTIONS

A ballot is enclosed with this Disclosure Statement and sent to all holders
of Allowed Claims and Interests who are impaired who are entitled to vote on the
Plan. Although the interests of all of the shareholders will be allowed, only
those shareholders of record at the close of business on ______________ 1989
will be entitled to vote to accept or reject the Plan. Holders of claims which
unimpaired are conclusively presumed to have accepted the Plan and are therefore
not entitled to vote. If you are a holder of impaired Claims or Interests in
more than one class, you will be sent ballot for each such class and you should
vote all ballots that receive. To vote on the Plan, indicate on the enclosed
ballot(s) whether you accept or reject the Plan. Return ballots to Debtor at the
following address: Sandra K. Bacak
Cambridge Oil Company
6200 Savoy, Ste. 740
Houston, Texas 77036

BALLOTS MUST BE RECEIVED AT THE ABOVE ADDRESS BY 5:00 P.M. CENTRAL TIME ON
_______________, 1989.

<PAGE>

Banks, brokers, and other nominees holding claims or Interests for
beneficial owners are requested to transmit a copy of this Disclosure Statement,
and a ballot or ballots to such beneficial owners with instructions for
returning ballots.

Each holder of an Allowed Claim which would otherwise be in Class E may
elect to be a Class D creditor by reducing its claim to $500 and receiving 75%
of its claims in cash in lieu of the treatment to which it would otherwise be
entitled under the Plan. If the election applies to you, your ballot will so
indicate. Please read your ballot carefully. Please note that an election to be
included in the small claims Class D will be deemed to be an acceptance of the
Plan.

VI. ACCEPTANCE AND CONFIRMATION OF THE PLAN
---------------------------------------

In order to confirm the plan, the Bankruptcy Code requires that
the Court make a series of determinations concerning the Plan, including: (i)
that the Plan has classified creditor and equity security holder interests in a
permissible manner; (ii) that the contents of the Plan comply with the technical
requirements of the Bankruptcy Code; (iii) that the Debtor and Successor have
proposed the Plan in good faith; and (iv) that the debtor and successor
disclosures concerning the plan have been adequate and have included information
concerning all payments made or promised in connection with the Plan and the
bankruptcy case, as well as the identity, affiliations and compensation to be
paid to all officers, directors and other insiders. Debtor and Successor believe
that each of these conditions has been

<PAGE>

met, and will seek rulings of the Court to this effect at the hearing on
confirmation of the Plan

The Bankruptcy Code also imposes requirements of acceptance of Plan by
creditors and holders of Interests, minimum value of distributions, and
feasibility. To confirm the Plan, the Court must find that each of these
conditions is met. Thus, even if creditors and holders of Interests in the
impaired classes B, C, D, E, F and G accept the Plan by the requisite
majorities, the Court must undertake an independent evaluation of the
feasibility of the Plan before it may confirm the Plan. The conditions for
minimum value, financial feasibility and acceptances are discussed below.

A. BEST INTERESTS TEST (MINIMUM VALUE)

Notwithstanding rejection of the Plan by an impaired class of Claims or
interests under the Plan, in order to confirm the Plan, under Section 1129
(a)(7) of the Code, the Court may determine that, with respect to each holder of
a claim or interest in such rejecting impaired class, the Plan is in the "best
interests" of each holder of a claim or interest within such Class. The "best
interests" test requires that the Court find that the Plan provides to each such
holder of a claim or interest a recovery which has a value at least equal to the
value of the distribution that such holder would receive from the Debtor, if the
Debtor were instead liquidated under Chapter 7 of the Code.

To calculate what non-accepting holders would receive, if a Debtor were
liquidated under Chapter 7, the Bankruptcy Code must first determine the dollar
amount that would be generated upon disposition

<PAGE>

of such Debtor's assets. The aggregate amount so generated would be reduced by
the costs of liquidating such Debtor. Such costs would be expected to include
the fees of a trustee (as well as those of counsel and other professionals that
such trustee would in all likelihood employ), selling expenses, and claims
arising from such trustee's rejection of obligations assumed or otherwise
incurred during the pendency of such Debtor's case.

Further, distributions to unsecured creditors in a Chapter 7 liquidation
would not occur immediately upon completion of a Debtor's liquidation, but would
be delayed pending determination of the aggregate amount of unsecured claims
against such Debtor. Such a determination would entail significant delay and
lost opportunity cost even for those creditors whose claims were ultimately
allowed.

Debtor and Successor have prepared a liquidation analysis for the purpose
of complying with Section 1129(a)(7) of the Bankruptcy Code and to provide
creditors and shareholders with the Debtor's estimate of the amount of a
"liquidation fund" that would result upon a hypothetical liquidation of Debtor,
effective December 31, 1989 Debtor and Successor have no reason to believe that
the results would be materially different if the hypothetical liquidation were
to occur on the Effective Date. Debtor and Successor believe this test will be
satisfactory as indicated by the liquidation analysis set forth in Exhibit 2
annexed hereto which conclude that unsecured creditors and shareholders would
receive nothing in liquidation.

<PAGE>

B. FEASIBILITY

As a condition to confirmation of a plan of reorganization, Section
1129(a)(ll) of the Code requires that the confirmation is not likely to be
followed by a liquidation or the need for further financial reorganization,
except as proposed in such plan. The essence of the feasibility requirement for
this Plan is to establish that Successor can and shall make the required Plan
distributions to creditors and stockholders.

Set out in Exhibit 3 are consolidated Pro Forma Balance Sheets and Cash
Flow Projections for Debtor and Successor on a combined basis which indicate
sufficient cash reserves to meet the requirements of the Plan.

THESE FINANCIAL PROJECTIONS SET FORTH IN THIS DISCLOSURE STATEMENT
REPRESENT A PREDICTION OF FUTURE EVENTS BASED ON CERTAIN ASSUMPTIONS OF
MANAGEMENT AND OTHERS SET FORTH IN SUCH PROJECTIONS. ANTICIPATED FUTURE EVENTS
MAY OR MAY NOT OCCUR AND THE PROJECTIONS MAY NOT BE RELIED UPON AS A GUARANTEE
OR OTHER ASSURANCE OF THE ACTUAL RESULTS WHICH WILL OCCUR. BECAUSE OF THE
UNCERTAINTIES INHERENT IN PREDICTIONS OF FUTURE EVENTS, THE ACTUAL RESULTS OF
OPERATIONS MAY WELL BE DIFFERENT FROM THOSE PREDICTED AND SUCH DIFFERENCES MAY
BE MATERIAL AND ADVERSE.

THE FINANCIAL PROJECTIONS ARE INTENDED TO ASSESS FUTURE ASSETS,
LIABILITIES, INCOME, AND CASH FLOW AVAILABLE FOR DEBT SERVICE AND ARE NOT
DESIGNED OR INTENDED TO BE USED FOR PURPOSES OF PROJECTING THE FUTURE VALUE OF
EITHER COMMON OR Preferred SHARES AND SHOULD NOT BE RELIED UPON FOR THAT.

<PAGE>

Based on the Cash Flow Projections, Debtor and Successor believe that the
Plan satisfies the feasibility requirement of the Code.

C. ACCEPTANCE

The Bankruptcy Code requires as a condition to confirmation that each class
of claims or interests that is impaired under the Plan accept the Plan, or that
the plan be "fair and equitable" as to such class as described below. The
Bankruptcy Code defines acceptance of a Plan by a class of claims as acceptance
by holders of two-thirds in dollar amount and a majority in number of claims of
that class, but for confirmation purpose only those who actually vote their
claims to accept or to reject the Plan are counted in tabulating the results of
the vote. The Bankruptcy Code defines acceptance of a Plan by a class of
interests as acceptance by two-thirds in amount of the allowed interests in such
class, but for that purpose counts only those claims, which actually vote to
accept or reject the Plan.

Classes of claims and Interests that are not "impaired" under the Plan are
conclusively presumed to have accepted the Plan. Thus, Debtor and Successor are
soliciting acceptances of the Plan only from those entities who hold claims or
interests in impaired classes. A class is "impaired" if the conditions and
requirements of Bankruptcy Code section 1124 are met. All classes except Class A
are impaired under the Plan.

D. CONFIRMATION WITHOUT ACCEPTANCE BY ALL IMPAIRED CLASSES

The Bankruptcy Code contains provisions for confirmation of a plan even if
the plan is not accepted by all impaired classes, as long

<PAGE>

as at least one impaired class of claims has accepted it. These "cram-down"
provisions allow for confirmation of a plan despite the non-acceptance of one or
more impaired classes of claims or interests are set forth in Section 1129(b of
the Bankruptcy Code.

If a class of secured claims rejects the Plan, the Plan may still be
confirmed so long as the Plan does not discriminate unfairly as to a class, and
is "fair and equitable" with respect to such class under Section 1129(b) of the
Bankruptcy Code and applicable case law Section 1129(b) of the Bankruptcy Code
states that the "fair and equitable" standard requires, among other things, that
the Plan provide (i) that the lien securing the claim of each member of the
class is to be left in place and the holders of the claim will receive deferred
cash payments of a present value equal to the lesser of the amount of such
claims or the value of the collateral securing such claims; (ii) that the
collateral securing the claims be sold free of the lien with the lien attaching
to the proceeds and with such lien on the proceeds being treated under one of
the two other standards described in this paragraph; or (iii) a treatment for
the claim that is the "indubitable equivalent" of the claim. Debtor and
Successor believe that the Plan meets this test and therefore that the Plan can
be confirmed even if it is rejected by holders of Allowed Secured Claims in
Classes B and C.

If a class of unsecured claims rejects the Plan, the Plan may still be
confirmed so long as the Plan is not unfairly discriminatory as to that class
and is "fair and equitable" to such class. Under Section 1129(b) of the
Bankruptcy Code, a plan is "fair and equitable"

<PAGE>

as to a class of unsecured claims if, among other things, the Plan provides
that: (i) each holder of a claim included in the rejecting class receives or
retains on account of that claim property which has a value, as of the Effective
Date, equal to the allowed amount of such claim; or (ii) the holder of any claim
or Interest that is junior to the claims of such class will not receive or
retain any property at on account of such junior claim or Interest. Debtor and
Successor believe that the Plan meets this test as to Classes D and E.
Therefore, Debtor and Successor believe that the Bankruptcy Court could confirm
the Plan even if it is rejected by one such class of unsecured claims as long as
one impaired class of claims accepts it.

If either Class F or Class G (Classes of Interests) reject the Plan, the
Plan may still be confirmed so long as the Plan is "fair and equitable" under
applicable case law and provides, that the holder of any interest that is junior
to the Interests of such class will not receive or retain under the Plan on
account of such junior interest any property at all. There is no interest junior
to the Common Stock. However, the legislative history of the Bankruptcy Code
indicates that the "fair and equitable" standard includes other factors which
are found by the Court to be fundamental to "fair and equitable" treatment of a
dissenting class. For example, a dissenting class should be assured that no
senior class receives more than 100% of the allowed amount of its claims. Debtor
and Successor believe that the Plan meets this test and therefore that the Plan
can be confirmed even if it is rejected by holders of Classes F and G.

57
<PAGE>

E. CLASSIFICATION OF CLAIMS AND INTERESTS

Section 1122 of the Bankruptcy Code requires that a plan of reorganization
place each creditor's claim and each interest in a class with other claims or
interests which are "substantially similar" The Debtor and Successor believe
that the classification system in the Plan satisfies the Bankruptcy Code's
standards.

F. CONFIRMATION HEARING

Section 1128(a) of the Code requires the Court, after notice to hold a
hearing on confirmation of the Plan (the "Confirmation Hearing"). THE
CONFIRMATION HEARING FOR THIS PLAN IS SCHEDULED TO BEGIN
___________________________

Section 1128(b) provides that any party in interest of any Debtor may
object to confirmation of the Plan. Any objection to confirmation of the Plan
must be made in writing and filed with the Court, together with proof of
service, and served by hand or overnight courier for receipt on or before 5:00
p.m. Central Standard Time at the following addresses:

United States District Court
For the Southern District of Texas
Houston Division in Bankruptcy
811 Rusk
Houston, Texas 77002

Objections to confirmation of the Plan are governed by Bankruptcy Rule
9014. UNLESS AN OBJECTION TO CONFIRMATION IS TIMELY SERVED AND FILED, IT WILL
NOT BE CONSIDERED BY THE Court.

G. EFFECT OF CONFIRMATION

Except as otherwise provided in the Plan or Confirmation Order, and in
addition to other consequences of Confirmation as

<PAGE>

disclosed herein, entry by the Court of the Confirmation Order will: constitute
approval of the assumption and assignment of all executory contracts or leases
unless previously rejected pursuant to the Plan; constitute authorization for
the Debtor to act as a Disbursing Agent; constitute authorization for the
Debtor's or Successor's use of funds of the estate to meet any cash requirement
in the case; and will act as discharge, effective as of the Effective Date of
the Plan, of the Debtor and Successor, of all their claims that arose at any
time before the entry of the Confirmation Order.

Except as otherwise provided in the Plan and the Confirmation Order, upon
the effective Date, all property of the Debtor shall vest in Successor free and
clear of all liens, claims and interest of all creditors of and interest holders
in the Debtor.

H. EFFECTIVE DATE OF THE PLAN

The Plan will become effective on the thirtieth day after the date on which
the Confirmation Order becomes final and nonappealable.

VII. ALTERNATIVES TO THE PLAN
--------------------------

It is the view of the Debtor that the only feasible alternative to the Plan
as proposed would be the conversion of the Chapter 11 case to a Chapter 7 case,
and the subsequent liquidation of the Debtor by a duly appointed or elected
trustee. In the event of a liquidation under Chapter 7, it is the view of the
Debtor that the following is likely to occur:

<PAGE>
(1) An additional tier of administrative expenses entitled to priority over
general unsecured claims under Section 507(a)(l) of the Bankruptcy Code will be
incurred. Such administrative expenses will include the trustee's commissions as
well as professional fees for the trustee's accountants, attorneys and other
professionals likely to be retained by the trustee.

(2) The Debtor believes that in a Chapter 7 liquidation the proceeds
realized at December 31, 1989 from the disposition of assets, including accounts
receivable, and oil and gas reserves, (the primary assets of the debtor) would
be approximately $750,000. However, there would be no recovery for unsecured
creditors or shareholders of the Debtors after payment of Administrative,
Priority and Secured Claims. Further, it is believed that the liquidation of the
Debtor's assets would be a long and expensive process with no assurance that
even projected liquidation values would in fact be realized.

(3) Additional claims would be asserted against the Debtor with respect to
such matters as termination of leases, severance payments to employees mandated
by law, income and other taxes associated with the sale of assets and the
inability of the Debtor to fulfill outstanding contractual commitments and other
items.

The total of all these increased claims cannot be estimated at this time
with any reasonable accuracy, but could materially increase the claims and
obligations to be satisfied out of the proceeds of liquidation and
correspondingly would reduce the funds, if any, available to satisfy the claims
of creditors in the Chapter 11 Case.

60
<PAGE>

Attached hereto as Exhibit 2 is Debtor's unaudited Liquidation Analysis as
of December 31, 1989, which reflects the estimated liquidation values of the
Debtor's assets. Liquidation values have been arrived at based upon the
experience of the Debtor's management and employees, consultation with
independent petroleum engineers and an evaluation of the factors believed likely
to have an impact on realization of the value of the assets in a forced
liquidation.

The Debtor's oil and gas property liquidation values are based on reserve
volumes and production schedules audited by Gerald Dupont Enterprises, Inc., an
independent petroleum engineering firm, using oil and gas pricing projected to
be representative of oil and gas market prices at January 1, 1989, adjusted for
estimated depletion since that date. Liquidation values were then calculated
using 1) acquisition costs which would result in a 20% discount rate, 2) based
on the inclusion of 100 percent of proved developed producing reserve value and
30 percent of proved undeveloped reserve value and 3) estimated costs (15%) of
liquidating the properties.

Liquidation values are necessarily based upon assumptions which may not
prove to be correct, and actual liquidation values could vary from the estimated
values.

The liquidation analysis does not take into account potential preferential
or fraudulent transfers which the Debtor or a Chapter 7 trustee may recover.
However, the Debtor has made a review of these potential voidable transfers and
believes that any potential recovery would have no material effect on the
liquidation analysis.

61
<PAGE>

As set forth in the Liquidation Analysis, there is no realistic possibility
of any distribution to general creditors of the Debtor in the event of a
conversion of the Chapter 11 case to a Chapter 7 case.

VIII. DESCRIPTION OF NORMANDY OIL AND GAS COMPANY,
----- --------------------------------------------
INC., HOUSTON OPERATING COMPANY AND SECURITIES TO BE ISSUED
-----------------------------------------------------------

A. DESCRIPTION OF NORMANDY
-----------------------

(1) DESCRIPTION OF BUSINESS.
-----------------------

Normandy was incorporated on March 31, 1929 as a New York corporation and
was formerly named Servus Clothes, Inc. In 1968, the name of the Company was
changed to Saxony Industries, Inc. The Company was an inactive corporation from
1972 to April 1983 when it was reactivated to engage in the oil and gas
business. In August, 1984, the name was changed to Normandy Oil and Gas Company,
Inc.

Normandy's principal objective has been to acquire and manage and gas
assets as cost effectively as possible given the current economic environment of
the industry. Normandy is of the view that it can acquire oil and gas properties
through the purchase or merger of financially distressed companies at costs
lower than Normandy would incur by drilling and developing comparable reserves.
Thus, it drilled no development wells in its last fiscal year. Substantially all
Normandy's acquisition, exploration, and development activities are conducted in
Texas, Louisiana, and Colorado.

Although Normandy presently intends to continue its pursuit of potentially
attractive acquisitions of financially-distressed entities, such as that
contemplated by the Plan, there can be no

<PAGE>

assurance that Normandy will continue this means of acquiring oil and gas
properties in the future. Future acquisitions will depend on the relative cost
of acquisitions compared to the cost of drilling for resources, the success of
Normandy's drilling operations, the market demand for oil and gas, the
availability of satisfactory acquisition candidates and the cash and credit
facilities available to Normandy. Due to the decline in oil and gas prices,
particularly the recent sharp decline in oil prices in 1986, and the increasing
difficulty in securing additional credit lines from bank lenders, Normandy may
have to seek alternative financing methods and may have to curtail its
acquisition activities if alternative financing is not available.

(2) CUSTOMERS AND MARKETS

Normandy does not refine or process the oil and natural gas it produces.
Normandy's production is primarily sold to unaffiliated oil and gas purchasing
companies in the area where it is produced. Production is transported by trucks
and pipelines. Crude oil and condensate are sold under short-term contracts at
competitive field prices posted by major purchasers of crude in the area.
Natural gas is sold to natural gas pipeline companies generally under long term
contracts. Normandy also sells gas on the spot market, which prices are
generally below contract prices. Normandy may sell increasing volumes of gas on
the spot market if no alternative market exists for its gas. In addition, many
of Normandy's gas contracts incorporate "market-out" provisions which permit the
gas purchaser to terminate

<PAGE>

the contract (or reopen negotiations on the price set forth therein) if the
contract price exceeds market prices. Furthermore, many of Normandy's gas
contracts provide for annual (or more frequent) redeterminations of the purchase
price.

(3) EMPLOYEES

As of June 30, 1988, Normandy had twenty-four full time employees, of whom
sixteen were located at the Fort Worth office, two located in the Austin office,
and six were field personnel. From time to time, Normandy utilizes the services
of consulting geologists, engineers and lancimen. It is anticipated that the
Debtor's remaining employees will be hired by Normandy and/or Houston Operating
upon the Effective Date. It is also anticipated that a bonus of approximately
two months salary shall be paid to Sandra Bacak and Charles Williams as a result
of services rendered by them on behalf of the Debtor during the pendency of the
Chapter 11 proceedings and their committment not to leave the Debtor's employ
during the course of the Debtor's Chapter 11 proceeding.

(4) PROPERTIES AND PRODUCTION

Normandy's properties are located exclusively in Texas, Louisiana and
Colorado. Normandy has no foreign operations or properties.

Normandy's interests in producing and non-producing acreage are in the form
of working interests, royalty and overriding royalty interests. The working
interests are subject to royalty and overriding

64
<PAGE>

royalty interests either pre-existing or created in connection with their
acquisition), liens incident to operating agreements, liens for current taxes
and other burdens or minor liens, encumbrances, easements and restrictions.
Normandy believes that none of such burdens materially detracts from the value
of such properties or interferes with their operation. Substantially all of
Normandy's major productive properties are collateral securing existing credit
facilities. As is customary in the oil and gas industry, detailed title
examinations are not made at the time of acquisition of undeveloped properties.
More thorough investigations are made, including in most cases obtaining a title
opinion, before commencement of drilling operations or preparation of division
orders.

<TABLE>
<CAPTION>
As of June 30, 1988, Normandy's proved reserves were 560,098 barrels of oil
and 6,139,596 mcf of gas. Production revenues of recent years were as follows:

Year Ended June 30:
<S> <C> <C> <C> <C> <C>
1984 1985 1986 1987 1988
---- ---- ---- ---- ----
PRODUCTION:
Oil (BBLS) 2,414 2,371 3,195 13,024 30,408
Natural Gas (MCF 127,798 230,598 129,137 112,592 404,346

UNIT PRICES AND COSTS:
Oil (per BBL) $ 27.68 $ 26.39 $ 19.26 $14.82 $17.40
Natural Gas
(per MCF) 2.13 2.70 2.24 1.85 1.51

PRODUCTION COSTS PER
EQUIVALENT BBL: 4.31 5.74 4.53 5.73 5.15

AMORTIZATION PER
EQUIVALENT BBL: 4.17 3.99 4.24 5.13 3.76

</TABLE>
65
<PAGE>

(5) OFFICERS AND DIRECTORS

Normandy's officers and directors are as follows:

DATE OF
NAME AGE POSITION APPOINTMENT
---- --- -------- -----------
Frank W. Cole 63 Director, April 1983
Chairman of the Board

Roy T. Rimmer, Jr. 47 Director, President and September 1986
Chief Executive Officer

Mack S. Cohn 47 Director January 1989

Judy M. Brooks 39 Secretary September 1986

William I. Temple 42 Vice President, June 1987
Operations

The directors of Normandy are elected to serve until the next annual
shareholders meeting or until their respective successors are elected and
qualified. Normandy officers hold office until the meeting of the Board of
Directors after the next annual shareholder's meeting or until removal by the
Board of Directors. There are no arrangements or understandings among the
officers and directors pursuant to which any of them are elected as officers and
directors.

The following information is a brief account of the business experience for
the past five years of the individuals listed above.

Frank W. Cole has been, for at least the past five years, the owner of
Frank W. Cole Engineering, and oil and gas consulting firm located in Dallas,
Texas. Mr. Cole has served as chairman of the board of Normandy since April 1983
and served as president from April 1983 to October 1986. Her retired from Amcole
Energy Corporation, a publicly held Utah corporation engaged in oil and gas
production and development, in July 1982 after acting as president and founder
since 1971 and continued to serve as a director until 1985. Mr. Cole is a

<PAGE>

director and vice president of Phoenix Capital Corporation. Mr. Cole is a
director of Sunbelt Exploration.

Roy T. Rimmer, Jr. has served as the president and a director of Normandy
since September, 1986. From February 1983 to the present, Mr. Rimmer has been
the chief executive officer and principal equity owner of two privately-held oil
and gas companies based in Fort Worth, Texas. Mr. Rimmer was chairman of the
board and president from June 1982 to February 1986 of Poll Gas, Inc. a
corporation which operated a gas gathering and transmission system located in
Lincoln County, Oklahoma. In July 1982, Mr. Rimmer became chairman of the board
and president of Amcole Energy Corporation, a publicly-held Utah corporation
engaged in oil and gas production and development, and he continue to hold such
positions until February 1986. Mr. Rimmer is a director and chairman of the
board of Phoenix Capital Corporation. Mr. Rimmer is president and a director of
Sunbelt Exploration, Inc. Mr. Rimmer is president and a director of Roseland Oil
and Gas, Inc.

Mr. Mack S. Cohn was elected a director of Normandy Oil and Gas Company,
Inc. on January 31, 1989 at a Special Meeting of the Board of Directors. Mr.
Cohn will also serve on Normandy's audit committee. Mr. Cohn is an officer and
director of Regal Limousine Service, a privately held Ft. Worth based company.
He also serves on the board of Gamtex, Inc. and the Miss Texas Scholarship
Pageant. Previously, he has served as an officer of Beth-El Congregation and the
Forth Worth Jaycees. Mr. Cohn graduated from New Mexico Military Institute, and
attended Texas Christian University.

67
<PAGE>

Judy M. Brooks has been the corporate secretary of Normandy since September
1986, and is also responsible for supervising all administrative personnel. Ms.
Brooks was employed by Amcole Energy Corporation from September 1978 to February
1986, where she was the corporate secretary and, after January 1985, responsible
for investor and stockholder relations. Ms. Brooks is secretary, treasurer and a
director of Phoenix Capital Corporation. Ms. Brooks is assistant secretary and a
director of Roseland Oil and Gas, Inc.

William I. Temple, a registered professional engineer, has been Vice
President of Operations for Normandy since June 1987, and had previously been a
consultant to Normandy. Mr. Temple previously served as founder, president and
chairman of the board of William I Temple, Investments, Inc. and its
subsidiaries from January 1979 to November 1986, when it was subsequently
acquired by Normandy. Mr. Temple has served in various positions of authority
with other oil and gas companies involved in drilling, exploration and
production. Effective August 1, 1988, Mr. Temple resigned as Vice President of
Operations but continues to work with Normandy as a consultant.

(6) FURTHER INFORMATION

Set forth as Exhibit 4 is Normandy's most recent SEC Form 10K (year ended
June 30, 1988). Included within this Exhibit is information pertinent to the
following:

1. Business;
2. Properties;
3. Legal Proceedings;
4. Submission of Matters to a Vote of Security Holders;
5. Market for the Company's Common Equity
and Related Stockholder Matters;
6. Selected Financial Data;

68
<PAGE>

7 Management's Discussion and Analysis of
Financial Condition and Results of Operation;
8. Financial Statements and Supplementary
Data;
9. Changes in and Disagreements on
Accounting and Financial Disclosure;
10.Directors and Executive Officers of the
Company;
11.Executive Compensation;
12.Security Ownership of Certain Beneficial Owners
and Management;
13.Certain Relationships and Related Transactions

B. DESCRIPTION OF HOUSTON OPERATING COMPANY
-------------------------------------------

Houston Operating Company is a wholly owned subsidiary of Normandy Oil &
Gas Corporation. Inc., incorporated in the State of Delaware on August 31, 1989.
The aggregate number of authorized shares Houston Operating Company has
authority to issue is 60,000,000, of which 50,000,000 shares are Common Stock
having a par value of $.0O1 per share, 5,000,000 shares are Preferred Stock
having a par value of $.0Ol per share and 5,000,000 shares are Preference Stock
having a par value of $.O0l per share. At August 31, 1989, Houston Operating
Company had not engaged in any business operations other than organizational
activities. At August 31, 1989, Houston Operating Company had no assets or
liabilities, and no income had been received and no costs had been incurred,
other than organizational costs.

Houston Operating Company was established to effect the transactions of the
Plan. Prior to confirmation, Houston Operating Company will issue 2,500,000
shares of its Common Stock to Normandy in consideration for the costs incurred
by Normandy in its organization and implementation of its business as
contemplated by the Plan.

<PAGE>

C. DESCRIPTION OF PLAN SECURITIES
---------------------------------

The Plan calls for issuance of four types of securities: Participation
Rights, Warrants (Class A and Class B), Common Stock of Houston Operating
Company, and Normandy Common Shares for which Houston Operating Company Common
Shares may be exchanged. A Unit consists of one share of Houston Operating
Company Common Stock, one Class A Warrant and one Class B Warrant.

Participation Rights will be issued to Common shareholders of Cambridge at
a rate of one right for each 80 shares of presently issued and outstanding
Common Stock. Each right entitles the holder to acquire one Unit at an exercise
price of $1.00. The Participation Rights are exercisable for a period of nine
months following the Effective Date and are represented by a certificate issued
to the Cambridge shareholders, setting forth the terms of such Participation
Rights. The form of the Participation Right certificate to be issued to
shareholders is attached to the Plan as Schedule 2 and is incorporated in its
entirety by this reference.

In addition to the issuance of Units, on exercise of the Participation
Rights, Units will also be issued to unsecured creditors at the rate of one Unit
for each $10.00 in claims and one Unit in exchange for each $100.00 in par value
of Preferred Stock.

The following summarizes the terms and conditions of the securities which
comprise a Unit:

(1) Warrants

(a) AMOUNT AND DELIVERY TO THE DISBURSING AGENT On or before the Effective
Date, Houston Operating Company will authorize the

<PAGE>

issuance of Class A Common Stock purchase warrants to purchase up to an
aggregate of 725,000 shares of its Common Stock, $.OOl par value and Class B
Common Stock purchase warrants to purchase up to additional 725,000 shares of
its Common Stock, $.OOl par value. Authorized Warrants shall be delivered to the
Disbursing Agent on the Effective Date.

(b) TERMS The terms of the Warrants are fully set forth in the Warrant
Agreement attached as Schedule 1 to the Plan, which is controlling of such terms
and is incorporated in its entirety by this reference. Such terms may be
summarized, however, as follows:

(I) CLASS A WARRANTS Each Class A Warrant may be exercised to purchase one
share of Houston Operating Company Common Stock at a price of $1.50
per share during the eighteen month period following the Effective
Date of the Plan. Class A warrants may be redeemed by Houston
Operating Company at a price of $.Ol per warrant on not less than
thirty days prior written notice at any time commencing nine months
following the Effective Date of the Plan.

(II) CLASS B WARRANTS Each Class B Warrant entitles holder to purchase one
share of Common Stock of Houston Operating Company at a price of $2.00
per share during the two year period following the Effective Date of
the Plan. The Class B Warrants are subject to redemption on the same
terms as the Class A Warrants.

3. HOUSTON OPERATING COMPANY COMMON SHARES
---------------------------------------

Subject to provisions of the Plan, the rights appurtenant to the holders on
Houston Operating Company Common Shares shall specified in the Articles of
Incorporation of Houston Operating

71
<PAGE>
Company, attached as Exhibit 8 hereto, and as set forth in the Agreement and
Undertaking between Houston Operating Company and Normandy attached as Schedule
3 to the Plan, which are controlling of such rights and are incorporated in
their entirety by this reference. Such terms may be summarized, however as
follows:

A. EXCHANGE PRIVILEGE - Common Shares of Houston Operating Company shall
at all times during the period commencing nine months from the
Effective Date be subject to exchange, at the option of the holder
during the entire period and also at the option of Normandy during the
last three years of such period, for Normandy Common Shares.

B. EXCHANGE RATIO - Upon exchange, holders of Houston Operating Company
Common Shares will receive Normandy Common Shares in an amount equal
to the lessor of:

(i) The number of shares of Normandy Common Stock issuable in
exchange for Houston Operating Company Common Stock determined by
multiplying the number of shares of Houston Operating Company Common
Stock to be exchanged by a fraction, the numerator of which shall be
the market price per Common share of Houston Operating Company and the
denominator of which shall be the market price per Common share of
Normandy; and

(ii) The number of shares of Normandy Common Stock issuable in
exchange for Houston Operating Company Common Stock determined by
multiplying the number of shares of Houston Operating Company Common
Stock to be exchanged by a

72
<PAGE>

fraction the numerator of which shall be $l.00 per Common share of
Houston Operating Company and the denominator of which shall be $4.0O
per Common share of Normandy.

4. DESCRIPTION OF NORMANDY COMMON SHARES
-----------------------------------------

Normandy's articles of incorporation authorize an aggregate of 150,OOO,OOO
shares of which 100,000,000 shares are Common Shares, par value $.OOl,
25,000,000 shares are Preferred Stock, par value $.OOl, and 25,000,000 shares
are Preference Stock, par value $.OOl. Normandy Common Shares have no preemptive
or other subscription rights, have no conversion rights, and are not subject to
redemption. No personal liability attaches to the ownership thereof. The holders
on Normandy Common Shares are entitled to one vote for each share held and
cumulative voting for election of directors or on any other matters is not
provided for.

In the event of liquidation, dissolution, or the winding up of Normandy,
either voluntarily or involuntarily, the holders of the outstanding Normandy
Common Shares are entitled to receive a pro rata portion of the net assets of
Normandy remaining after payment of all liabilities and any Preference on
Preferred or Preference Stock of Normandy which may then be outstanding. The
holders of Normandy Common Shares are entitled to dividends when, and if,
declared by the board of directors from funds legally available thereof, subject
to any Preference on Preferred or Preference Stock of Normandy which may then be
outstanding. Normandy has not paid a dividend in the past five years, and it is
not anticipated that a dividend will be paid in the foreseeable future.

73
<PAGE>

The articles of incorporation provide that the shares of Preferred and
Preference Stock may be issued in one or more series as designated by resolution
of board of directors, and each such series shall have such rights, preferences,
privileges and powers as shall be determined by the board of directors including
participation in dividends, participation in the assets of Normandy following
liquidation, the right to convert shares of Preferred or Preference Stock into
Normandy Common Shares or other securities of Normandy, and the rights to redeem
the Preferred or Preference Stock for cash, securities or other property. There
are currently no shares of Normandy Preferred or Preference Stock issued and
outstanding, and Normandy has no intention of issuing any shares of such Stock
at the present time.

IX. INCOME TAX CONSEQUENCES
-----------------------

The Plan and its tax consequences are complex, and the tax consequences of
the Plan will depend upon factual determinations. No ruling has been (or will
be, prior to the Effective Date), requested from the Internal Revenue Service
(the "Service") regarding the tax consequences of the Plan. BECAUSE THE TAX
CONSEQUENCES OF THE PLAN ARE COMPLEX AND MAY VARY BASED ON INDIVIDUAL
CIRCUMSTANCES, THIS DISCLOSURE STATEMENT RENDERS NO ADVICE ON THE TAX
CONSEQUENCES OF THE IMPLEMENTATION OF THE PLAN TO ANY PARTICULAR CREDITOR, TO
THE DEBTOR, OR TO INTEREST HOLDERS, EXCEPT AS SET FORTH ON THE PROJECTED
FINANCIAL INFORMATION SUPPLIED HEREWITH. EACH CREDITOR IS URGED TO CONSULT HIS
OR HER TAX ADVISOR AS TO THE TAX CONSEQUENCES OF THE PLAN TO HIM OR HER,
INCLUDING ANY CONSEQUENCES UNDER STATE AND LOCAL TAX LAWS.

<PAGE>
X. OFFER, ISSUANCE AND RESALE OF PLAN SECURITIES
AND RELATED SECURITY MATTERS
--------------------------

The offer and issuance of Plan Securities by Houston Operating Company and
Normandy Oil & Gas Company, Inc. as successor in interest to the debtor,
constitutes the offer and sale of securities under the Securities Act of 1933,
as amended (the "1933 Act") and applicable state securities laws, and the Plan
securities have not been registered under the 1933 Act or such state securities
laws, in reliance on the exemption therefrom provided by Section 1145 of the
Bankruptcy Code. None of the Plan Securities is being issued pursuant to an
indenture qualified under the Trust Indenture Act of 1939.

The Debtor and Successor believe that resales of the Plan Securities by
most holders may be effected in reliance on the exemptions provided by Section
1145 of the Code and Section 4(1) of the Securities Act of 1933, as amended,
without registration under applicable federal and state securities laws.
However, to the extent that a holder is deemed to be an "underwriter" as that
term is defined in subsection (b) of Section 1145, the exemptions provided by
that Section and Section 4(1) would not be available to resale of Plan
Securities by such holder.

BY ITS RECEIPT OF PLAN SECURITY EACH HOLDER SHALL BE DEEMED TO ACKNOWLEDGE
THAT IT IS RESPONSIBLE FOR ITS COMPLIANCE WITH ALL APPLICABLE SECURITIES LAWS.
EACH HOLDER SHOULD CONSULT HIS OR HER OWN ATTORNEY AS TO WHETHER ANY RESALE OF
PLAN SECURITIES REQUIRES REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES
ACT OF 1933 OR ANY APPLICABLE STATE SECURITIES LAWS.

75
<PAGE>

No market currently exists for any of the Plan Securities, except the
Normandy Common Shares. Houston Operating Company has received preliminary
indications of interest from certain member firms of the National Association of
Securities Dealers, Inc., of their willingness to make a market in the Warrants
and Common Shares when issued, but there is no assurance that a market in any
such securities will be established or, if established, continue to exist at any
give time in the future. Consequently, holders of the Plan Securities may not be
able to liquidate their position readily or at all.

In the event a market in Warrants or Common Shares develops, it is
anticipated that quotations will initially appear in the "pink sheets" published
by the National Quotation Bureau. As soon as practicable following the Effective
Date, Houston Operating Company intends to pursue registration of its securities
under section 12(g) of the Securities Exchange Act of 1934, as amended, and
obtain a listing of its securities in the National Association of Securities
Dealers, Inc., Automated Quotation System ("NASDAQ"). In order to register its
securities and obtain a listing on NASDAQ, Houston Operating Company, will be
required to satisfy certain conditions imposed by regulations of the Securities
and Exchange Commission an~ the National Association of Securities Dealer, Inc.
Houston Operating Company cannot predict at this time when it will satisfy such
conditions and obtain registration and listing of its securities on NASDAQ.

<PAGE>

XI. CONCLUSION
---------------

Debtor and Successor believe that the Plan provides the best means for
satisfying the claims of Debtor's creditors, and urge that you cast a vote
accepting the Plan.

CAMBRIDGE OIL COMPANY AND NORMANDY OIL & GAS COMPANY, INC.
AND HOUSTON OPERATING COMPANY

Debtor Successor

By:/s/Christine E. Haslett By:/s/Roy T. Rimmer, Jr.
Christine E. Haslett, Roy T. Rimmer, Jr.
Vice President President

Attorney for Debtor: Attorney for Successor:

Richard Fuqua, Esq. Mark E. Lehman
1331 Lamar, Suite #1455 136 South Main Street
Houston, Texas 77010 Salt Lake City, Utah 841101
(713) 951-2482 (801) 532-7858