<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT PURSUANT TO SECTION 13 OR 15 (d) of
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) October 25, 1995
HUNTER RESOURCES, INC.
(Exact name of Registrant as specified in its Charter)
Commission file number 1-1705
Pennsylvania 87-0205057
(State of Incorporation) (I.R.S. Employer Identification No.)
600 East Las Colinas Blvd., Suite 1200, Irving, Texas 75039
(Address of principal executive offices) (Zip Code)
(214) 401-0752
(Registrant's telephone number, including area code)
Page 1 of 36 pages contained in the sequential numbering system.
<PAGE>1
Item 2. Recent Developments
- -------------------------------
On October 25, 1995, Magnum Hunter Production, Inc. ("Magnum Hunter"),
a wholly-owned subsidiary of Hunter Resources, Inc., closed on an
acquisition ("Reef") of domestic producing oil and gas properties for
$2.315 million from a Dallas, Texas based independent. The purchase
price was comprised of $2.058 million cash, funded by the Magnum
Hunter's existing bank line of credit, and $257,000 in restricted common
stock (valued at $4.00 per share) of Magnum Petroleum, Inc., the new
parent of Magnum Hunter (subject to shareholder approval). The
acquisition had an effective date of August 1, 1995. The properties are
concentrated in five counties in Texas and one county in Kansas and
include ownership interest in 13 wells, all of which are now operated by
Gruy Petroleum Management Co., another wholly-owned subsidiary of the
Registrant. The properties have proved producing reserves estimated by
the Company's petroleum engineers of 345,500 barrels of oil and 244
million cubic feet of natural gas to the net interest acquired. The
future net revenues from these proved producing properties is estimated
at $4,189,000 with a discounted present worth at 10% of $2,771,778.
Item 7. Financial Statements and Exhibits.
- ----------------------------------------------
<TABLE>
<CAPTION>
Sequentially
Numbered Page
-------------
<S> <C>
(a) Financial Statements of the Business Acquired:
Independent Auditor's Report 4
Historical Summary of Revenue and Direct Operating Expenses
for the Year Ending December 31, 1994 and Nine Months
Ending September 30, 1995 5
Notes to Historical Summary of Revenues and Direct Operating
Expenses for the Year Ending December 31, 1994 and Nine
Months Ending September 30, 1995 6
(b) Pro forma financial information:
Pro Forma Consolidated Financial Information (unaudited) 8
Pro Forma Consolidated Balance Sheet (unaudited) as of
September 30, 1995 9
Pro Forma Consolidated Statement of Operations (unaudited)
For the Tweve Months Ended December 31, 1994 10
Pro Forma Consolidated Statement of Operations (unaudited)
For the Nine Months Ended September 30, 1995 11
Notes to Unaudited Pro Forma Consolidated Financial Statements 12
(c) Exhibits:
Agreement to Acquire Assets 13
</TABLE>
<PAGE>2
SIGNATURES
Pursuant to the requirements of Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DATED: December 5, 1995 HUNTER RESOURCES, INC.
By: /s/ Gary C. Evans
Gary C. Evans
President
<PAGE>3
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Hunter Resources, Inc.
Irving, Texas
We have audited the accompanying Historical Summaries of Revenue and Direct
Operating Expenses of Properties Acquired October 25, 1995, for the nine
months ended September 30, 1995 and the year ended December 31, 1994. The
Historical Summaries are the responsibility of the Company s management. Our
responsibility is to express an opinion on the Historical Summaries based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the Historical Summaries are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the Historical Summary.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall Historical
Summary presentation. We believe that our audit provides a reasonable basis
for our opinion.
The accompanying Historical Summaries were prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission (for inclusion in the Form 8-K/A of Hunter Resources, Inc.) as
described in Note 2 and are not intended to be a complete presentation of the
properties revenues and expenses.
In our opinion, the Historical Summaries referred to above present fairly, in
all material respects, the revenue and direct operating expenses of the
Properties Acquired October 25, 1995, for the nine months ended September 30,
1995 and the year ended December 31, 1994, in conformity with generally
accepted accounting principles.
HEIN + ASSOCIATES LLP
November 22, 1995
Dallas, Texas
<PAGE>4
HUNTER RESOURCES, INC. AND SUBSIDIARIES
PROPERTIES ACQUIRED OCTOBER 25, 1995
Historical Summary of Revenues and Direct Operating Expenses for the
Year Ending December 31, 1994 and the Nine Months Ending September 30, 1995
<TABLE>
<CAPTION>
Year Nine Months
Ended Ended
1994 1995
----------- --------------
<S> <C> <C>
Oil and gas sales $ 1,446,000 $ 859,000
Direct operating expenses (327,000) (225,000)
----------- --------------
Net revenues $ 1,119,000 $ 634,000
=========== ==============
</TABLE>
See Notes to Historical Summary
<PAGE>5
HUNTER RESOURCES, INC. AND SUBSIDIARIES
Properties Acquired October 25, 1995
Notes to Historical Summary of Revenues and Direct Operating Expenses for
Year Ending December 31, 1994 and Nine Months Ending September 30, 1995
1. Basis of Presentation
The accompanying Historical Summary of Revenues and Direct Operating
Expenses relates to the operations of the oil and gas properties acquired
by Hunter Resources, Inc. (Company) on October 25, 1995. The properties
were acquired in exchange for 64,176 shares of restricted common stock of
Magnum Petroleum, Inc. valued at $257,000 and $2,058,000 in cash provided
by a revolving credit facility. Revenues are recorded when oil and gas is
produced and direct operating expenses are recorded when the related
liability is incurred. Direct operating expenses include lease operating
expenses and production taxes. Depreciation and amortization of oil and
gas properties and general and administrative expenses have been excluded
from operating expenses in the accompanying historical summary because the
amounts would not be comparable to those resulting from proposed future
operations.
2. The Historical Summary presented herein was prepared for the purposes of
complying with the financial statement requirements of a business
acquisition to be filed on Form 8-K/A as promulgated by Regulation S-B Item
3-10 of the Securities Exchange Act of 1934.
3. The following estimates of proved oil and gas reserves for the Reef
properties were prepared by the Company in accordance and with guidelines
established by the Securities and Exchange Commission and the Financial
Accounting Standards Board, which require that reserve reports be prepared
under existing economic and operating conditions with no provision for
price and cost escalation except by contractual agreement. The Company
emphasizes that reserve estimates of new discoveries or undeveloped
properties are more imprecise than those of producing oil and gas
properties. Accordingly, these estimates are expected to change as future
information becomes available. All of the Reef reserves are located
onshore in the continental United States.
The following unaudited table sets forth the proved oil and gas reserves
for the Reef properties at December 31, 1994 and September 30, 1995,
together with the changes therein:
<TABLE>
<CAPTION>
Oil and Natural
Condensate Gas
Proved developed and undeveloped reserves: (BBLS) (MCF)
---------------------------------
<S> <C> <C>
Balance at January 1, 1994 416,000 267,000
Revisions of previous estimates 64,000 109,000
Extensions and discoveries 13,000 -
Production (88,000) (46,000)
------------- ----------
Balance at December 31, 1994 405,000 330,000
Revisions of previous estimates (17,000) (31,000)
Production (47,000) (24,000)
------------- ----------
Balance at September 30, 1995 314,000 275,000
============= ==========
Proved developed reserves at:
December 31, 1994 405,000 330,000
============= ==========
September 30, 1995 341,000 275,000
============= ==========
</TABLE>
<PAGE>6
<TABLE>
Standardized Measure of Discounted Future Net Cash Flows Relating to
Proved Reserves:
<CAPTION>
September 30, December 31,
1995 1994
-------------- -------------
<S> <C> <C>
Future Cash Flows $ 5,873,000 $ 6,763,000
Future Production Costs (1,973,000) (2,073,000)
Future Development Costs - -
______________ _____________
Future Net Cash Flows, Before Income Tax 3,900,000 4,690,000
Future Income Tax Expenses (55,000) (831,000)
-------------- -------------
Future Net Cash Flows 3,345,000 3,859,000
10% Discount to Reflect Timing of Net
Cash Flows (1,099,000) (1,315,000)
-------------- -------------
Standardized Measure of Discounted Future
Net Cash Flows 2,246,000 2,544,000
============== =============
</TABLE>
<TABLE>
Changes in Standardized Measure of Discounted Future Net Cash Flows Relating
to Proved Reserves:
<CAPTION>
September 30, December 31,
1995 1994
--------------- -------------
<S> <C> <C>
Standardized measure, beginning of period $ 2,544,000 $ 2,330,000
Revisions:
Net Change in sales price, net of
production costs 115,000 734,000
Revisions of quantity estimates (205,000) 634,000
Accretion of discount 254,000 233,000
Changes in timing, future development
and other (13,000) (73,000)
Sales, net of production costs (634,000) (1,119,000)
Net changes in income taxes 185,000 (196,000)
--------------- -------------
Standardized measure, end of period $ 2,246,000 $ 2,544,000
=============== =============
</TABLE>
<PAGE>7
HUNTER RESOURCES, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
(unaudited)
The following unaudited pro forma consolidated balance sheet of the Company
is based on the historical consolidated balance sheet as of September 30, 1995,
adjusted to give effect for the acquisition of the Reef oil and gas properties
acquired October 25, 1995 as if the acquisition had been consummated at the
balance sheet date. The historical consolidated statements of operations of
the Company for the year ended December 31, 1994 and the nine months ended
September 30, 1995 have been adjusted to give effect for the acquisition as
if the acquisition had been consummated at the beginning of each respective
period presented. In addition, the Company has also adjusted the consolidated
statements of operations for the acquisition on March 31, 1995 of the
Arrington oil and gas properties as if the acquisition had been consummated
at the beginning of each respective period presented. The Arrington
acquisition was previously reported on an amended Form 8-K filed September 26,
1995.
The pro forma consolidated balance sheet and statements of operations have
been prepared based on estimates and assumptions deemed by management of the
Company to be appropriate and do not purport to be indicative of the results
of operations which would actually have been obtained if the acquisition had
occurred as presented in such statements, or which may be obtained in the
future. The pro forma consolidated balance sheet and statements of operations
should be read in conjunction with the historical consolidated financial
statements and notes thereto included in the Company's Annual Report on Form
10-KSB for the year ended December 31, 1994 and the Company's Quarterly Report
on Form 10-QSB for the nine months ended September 30, 1995, which have been
filed with the Securities and Exchange Commission.
<PAGE>8
HUNTER RESOURCES, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1995
(unaudited)
<TABLE>
<CAPTION>
Hunter Pro Forma Combined
Historical Adjustments Pro Forma
------------ ------------- -----------
<S> <C> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash $ 87,000 $ $ 87,000
Notes and accounts receivable, net: Trade (less reserve of $84,000) 852,000 852,000
Affiliates 79,000 79,000
Prepaids 91,000 91,000
------------ -----------
TOTAL CURRENT ASSETS 1,109,000 1,109,000
------------ -----------
PROPERTY AND EQUIPMENT:
Oil and gas properties, full cost method 8,780,000 (A)2,335,000 11,115,000
Pipeline 674,000 674,000
Other property 218,000 218,000
------------ ------------ -----------
9,672,000 2,335,000 12,007,000
Accumulated depreciation, depletion, amortization and impairment (4,934,000) (4,934,000)
------------ ------------ -----------
PROPERTY AND EQUIPMENT, NET 4,738,000 2,335,000 7,073,000
Excess of cost of investments in subsidiaries over net assets acquired, net 963,000 963,000
Accounts and notes receivable, net: Trade - -
Affiliates 86,000 86,000
Deposits and other assets 4,000 4,000
------------ ------------ -----------
TOTAL ASSETS $ 6,900,000 $ 2,335,000 $9,235,000
============ ============ ===========
LIABILITIES AND STOCKHOLDERS EQUITY
-----------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued liabilities: Trade $ 957,000 $(A) 20,000 $ 977,000
Affiliates 19,000 19,000
Suspended revenue interests 733,000 733,000
Notes payable, current 575,000 (A) 576,000 1,151,000
------------ ------------ -----------
TOTAL CURRENT LIABILITIES 2,284,000 596,000 2,880,000
Deferred income tax 7,000 7,000
Long-term debt, less current portion 1,166,000 (A)1,739,000 2,905,000
Production Payment Liability (Non-Recourse) 305,000 305,000
Other Liabilities 85,000 85,000
------------ ------------ -----------
TOTAL LIABILITIES 3,847,000 2,335,000 6,182,000
------------ ------------ -----------
Commitments and contingencies - - -
STOCKHOLDERS' EQUITY:
Preferred stock, no par value; 1,000,000 shares authorized for
each Class A,B,C; 90,000 shares (Class A, Series 1) issued
and outstanding 90,000 90,000
Common stock, $.10 par value; 100,000,000 shares authorized;
18,354,261 shares issued and outstanding 1,835,000 1,835,000
Capital in excess of par value 1,816,000 1,816,000
Accumulated deficit (668,000) (668,000)
------------ ------------- -----------
3,073,000 3,073,000
Less 22,000 shares of treasury stock at cost and Put stock (20,000) (20,000)
------------ -----------
TOTAL STOCKHOLDERS' EQUITY 3,053,000 3,053,000
------------ ------------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,900,000 $ 2,335,000 $9,235,000
</TABLE>
See notes to Pro Forma Consolidated Financial Statements
<PAGE>9
HUNTER RESOURCES, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
For the Twelve Months ended December 31, 1994
-----------------------------------------------------------------------
Hunter Arrington Reef Pro Forma Combined
Historical Historical Historical Adjustments Pro Forma
------------ ------------ ------------ ------------- -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Gas gathering and marketing $ 443,000 $ $ $ $ 443,000
Oil and gas sales 581,000 563,000 1,446,000 2,590,000
Oil field services and commissions 1,122,000 (B) 48,000 1,170,000
Interest 26,000 26,000
Other 184,000 184,000
------------ ------------ ------------ ------------- -----------
TOTAL REVENUES $ 2,356,000 563,000 1,446,000 48,000 4,413,000
------------ ------------ ------------ ------------- -----------
Expenses:
Purchases of natural gas 262,000 262,000
Pipeline operations 76,000 76,000
Lease operating 412,000 153,000 327,000 892,000
Cost of services 654,000 654,000
Depreciation, depletion,
amortization and impairment 263,000 (C) 493,000 756,000
General and administrative 513,000 (D) 18,000 531,000
Interest 44,000 (E) 289,000 333,000
Legal settlement expenses 117,000 117,000
------------ ------------ ------------ ------------- -----------
TOTAL EXPENSES $ 2,341,000 153,000 327,000 800,000 3,621,000
------------ ------------ ------------ ------------- -----------
NET INCOME: 15,000 410,000 1,119,000 (752,000) 792,000
PREFERRED DIVIDENDS (9,000) (9,000)
------------ ------------ ------------ ------------- -----------
NET INCOME APPLICABLE TO
COMMON STOCK $ 6,000 $ 410,000 $ 1,119,000 $ (752,000) $ 783,000
============ ============ ============ ============= ===========
NET INCOME PER SHARE
(primarily and fully diluted) $ <F1> $ 0.02 $ 0.06 $ (0.04) $ 0.04
============ ============ ============ ============= ===========
<FN>
<F1>Less than $.01 per share
</FN>
</TABLE>
See notes to Pro Forma Consolidated Financial Statements
<PAGE>10
HUNTER RESOURCES, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
For the Nine Months ended September 30, 1995
-----------------------------------------------------------------------
Hunter Arrington Reef Pro Forma Combined
Historical Historical Historical Adjustments Pro Forma
------------ ------------ ------------ ------------- -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Gas gathering and marketing $ 144,000 $ $ 859,000 $ $ 144,000
Oil and gas sales 708,000 123,000 1,690,000
Oil field services and commissions 409,000 (B) 11,000 420,000
Interest 20,000 20,000
Other 271,000 271,000
------------ ------------ ------------ ------------- -----------
TOTAL REVENUES 1,552,000 123,000 859,000 11,000 2,545,000
------------ ------------ ------------ ------------- -----------
Expenses:
Purchases of natural gas 83,000 83,000
Pipeline operations 41,000 41,000
Lease operating 329,000 32,000 225,000 586,000
Cost of services 299,000 299,000
Depreciation, depletion,
amortization and impairment 284,000 (C) 244,000 528,000
General and administrative 349,000 (D) 11,000 360,000
Interest 129,000 (E) 202,000 331,000
------------ ------------ ------------ ------------- -----------
TOTAL EXPENSES 1,514,000 32,000 225,000 457,000 2,228,000
------------ ------------ ------------ ------------- -----------
NET INCOME: $ 38,000 $ 91,000 $ 634,000 $ (446,000) $ 317,000
============ ============ ============ ============= ===========
NET INCOME PER SHARE
(primarily and fully diluted) $ <F1> $ <F1> $ 0.04 $ (0.02) $ 0.02
============ ============ ============ ============= ===========
<FN>
<F1> Less than $.01 per share
</FN>
</TABLE>
See notes to Pro Forma Consolidated Financial Statements
<PAGE>11
HUNTER RESOURCES, INC. AND SUBSIDIARIES
Notes to Unaudited Pro Forma Consolidated Financial Statements
The following adjustments have been reflected in the accompanying Pro Forma
Consolidated Balance Sheet as of September 30, 1995 and Consolidated
Statements of Operations for the year ended December 31, 1994 and the nine
months ended September 30, 1995 to give effect for the Reef acquisition of
oil and gas properties on October 25, 1995.
A) To reflect the acquisition of the properties funded by a borrowing
from the Company s principal lending bank for $2,058,000 and the
issuance of a note payable to Magnum Petroleum, Inc. for $257,000,
representing the value of the Magnum Petroleum, Inc. shares issued in
the acquisition.
B) To reflect overhead fee income charged to outside owners on the
acquired properties for which operating rights were also acquired. The
overhead fee income generated by the Arrington acquisition was
estimated at $43,000 and $7,000 for the year ended December 31, 1994
and the nine months ended September 30, 1995, respectively. The
remainder of $5,000 and $4,000 arose from the Reef acquisition.
C) To reflect additional depreciation and depletion on oil and gas
properties as recalculated using the full cost method.
D) To reflect additional general and administrative costs associated with
the increase in the number of properties and the assumption of
operators duties on the acquired properties. The estimated additional
general and administrative expense for the Arrington acquisition was
$6,000 and $2,000 for the year ended December 31, 1994 and the nine
months ended September 30, 1995, respectively. The remainder of
$12,000 and $9,000 respectively, arose from the Reef acquisition.
E) To reflect interest expense associated with the financed portion of the
acquisitions. The estimated interest expense for the Arrington
acquisition amounted to $120,000 and $32,000 for the year ended
December 31, 1994 and the nine months ended September 30, 1995. The
Reef acquisition amounted to $169,000 and $170,000 for the respective
periods.
<PAGE>12
EXHIBIT
ASSET PURCHASE AND SALE AGREEMENT
THIS ASSET PURCHASE AND SALE AGREEMENT (this "Agreement"), dated as of this
13th day of September, 1995, is executed by and among Reef Exploration, Inc.
or its assigns, hereinafter collectively referred to as "Seller", and
Magnum Hunter Production, Inc., hereinafter referred to as "Buyer".
ARTICLE I
DEFINITION OF TERMS
-------------------
As used herein, the terms specified below shall have the following meanings:
SECTION 1.1: Properties
----------
The term "Properties" shall include each kind or character of right, title,
claim or interest which the Seller, has in the oil, gas and/or mineral leases
as more particularly described in Exhibit "A", which is attached hereto and
incorporated herein, as of the Closing date, including all mineral interests
and royalty interests owned by Seller, all ratifications, extensions and
renewals thereof, any unitization, farmout or forced pooling agreements
associated therewith, the interest in or units created by such agreements,
and all easements, permits, servitudes, rights- of-way, licenses, operating
agreements, and oil and/or gas purchase/sale agreements directly related
thereto. Notwithstanding the above, the term Properties shall not, however,
include the following properties, rights, interest or assets:
(a) Any right, title or interest of Seller in or to any accounts
receivable, money held in escrow or suspense accounts, or future receipts
attributable to Seller s interest in the oil and gas and other hydrocarbons
produces and sold from the Properties prior to the Effective Date.
(b) All claims and causes of action of Seller against others (except
claims or causes of action involving title to any of the Properties) arising
from acts or transactions affecting or relating to any of the Properties
occurring prior to the Effective Date including, but not limited to, rights
and claims against purchasers of production, rights to rate entitlements
arising from regulatory proceedings and other monetary claims or rights
against others.
SECTION 1.2: Personalty
----------
The term "Personalty" shall include the following rights and interests:
(a) All right, title or interest which Seller has in or to any personal
property, and improvements located on the Properties described on Exhibit "A",
which are attached to and made a part hereof and incorporated herein, as of
the Closing Date (including, but not limited to, wells, tanks, boilers,
fixtures, inventories, machinery and other equipment) for the exploration,
development, operation and maintenance of the Properties and related equipment
and inventory.
<PAGE>13
SECTION 1.3: Existing Wells
--------------
The term "Existing Wells" shall mean the oil, gas and/or mineral wells
located on the Properties which are currently producing or non-producing and
which are more particularly described in Exhibit "A", which is attached
hereto and incorporated herein.
ARTICLE II
AGREEMENT TO PURCHASE AND SALE
SECTION 2.1: Agreement
---------
On the terms and subject to the conditions herein set forth, Buyer agrees
to purchase Seller s right, title, and interest in the Properties, Existing
Wells and Personalty from Seller and Seller agrees to sell, transfer,
assign and convey to Buyer, Seller s right, title and interest in the
Properties, Existing Wells and Personalty as further described on Exhibit "A".
SECTION 2.2: Purchase Price
--------------
The purchase price agreed to be paid by Buyer for Seller s right, title and
interest in the Properties, Existing Wells and Personalty is Two Million Four
Hundred Ninety-One Thousand Dollars and No Cents ($2,491,000) (the "Base
Purchase Price"), subject to any applicable purchase price adjustment as
provided for herein. One Hundred Thousand and No/100 U.S. Dollars
($100,000.00) of the Purchase Price (the Escrowed Funds ) shall be payable
upon execution of this Agreement by Buyer and Seller by Buyer s delivery of a
confirmed wire transfer of funds, bank cashier's check or other form of
immediately available funds to First Interstate Bank of Texas, N.A., Irving,
Texas, as Escrow Agent, to be held and distributed in accordance with the
terms of the Escrow Agreement attached hereto as Exhibit D (the Escrow
Agreement ), and the remainder shall be payable by Buyer to Seller at the
Closing. The fees of the Escrow Agent shall be paid by the party to which
the Escrowed Funds are disbursed. The total consideration will be structured
as follows:
(a) Two Million Two Hundred Sixty-Six Thousand Dollars and No Cents
($2,266,000) cash due at the time of Closing subject to any applicable
purchase price adjustment as provided for herein; and
(b) Two Hundred Twenty-Five Thousand Dollars and No Cents ($225,000) in
fully paid and nonassessable shares of Magnum Petroleum, Inc. restricted
common stock, $0.002 par value, free and clear of all liens and encumbrances,
due at the time of Closing, subject to any applicable purchase price
adjustment as provided for herein.
The above allocation represents the fair market value as determined
and agreed to by the parties. All assets sold under this Agreement are Class
III assets as defined under IRS Treas. Reg. 1.060 - 1T. The parties agree
that the above allocation shall be reported on Form 8594 or similar form to
be filed by Buyer or Seller with the Internal Revenue Service and any other
taxing authority requiring allocation of the purchase price and said
allocation shall be consistent with this Section 2.2. In the event any
taxing authority questions the above allocations, the parties agree to make
any modifications that may be required to this allocation after consultation
with one another and mutual agreement to the same.
<PAGE>14
SECTION 2.3: Effective Time, Closing Date and Closing
----------------------------------------
The "Effective Time" of the sale shall be August 1, 1995, at 7:00 a.m.
CDT. Buyer's purchase of Seller s interest pursuant to this Agreement shall
take place on or before 2 p.m. Central Daylight Time on October 10, 1995,
which date and time shall herein be referred to as the "Closing Date". The
place of "Closing" shall be at the offices of Buyer, located at 600 East Las
Colinas Blvd., Suite 1200, Irving, Texas 75039.
SECTION 2.4: Accounting for Certain Operating Costs from August 1,1995
to Closing Date
---------------------------------------------------------
(a) Buyer shall be responsible for all operating costs after the
Closing Date, and Seller shall be responsible for all operating costs incurred
prior to the Closing Date.
SECTION 2.5: Base Purchase Price Adjustment
------------------------------
The Base Purchase Price shall be increased by:
---------
(a) All expenditures paid by Seller in connection with the operation,
maintenance or repair of the Properties from the Effective Time to Closing
(as herein defined);
(b) All prepaid expenses paid by Seller attributable to the Properties
from the Effective Time to Closing, including, but not limited to, any delay
rentals or shut-in royalties;
(c) All underproduced gas imbalances as of the Effective Date as
reflected on Exhibit "B" attached hereto, the value of such gas production
imbalance adjustment shall be calculated by multiplying the net volume of
gas in the account by $1.50 per MCF (thousand cubic feet before Btu adjustment)
for the Properties;
(d) Any other amount agreed upon in writing by Buyer and Seller;
and shall be reduced by:
-------
(e) The ownership interest proportioned to the Base Purchase Price for
which title cannot be delivered on those Properties outlined on Exhibit A,
but in on event, shall such amount exceed 10% of the Base Purchase Price;
(f) All proceeds received by Seller from sales of production
attributable to the Properties that is produced from the Effective Time to
Closing (net of burdens, production and severance taxes deducted therefrom
and paid by or on behalf of Seller);
(g) All other proceeds received by Seller which are attributable to
the Properties from the Effective Time to Closing;
<PAGE>15
(h) All overproduced gas imbalances as of the Effective Date as
reflected on Exhibit "B" attached hereto, the value of such gas production
imbalance adjustment shall be calculated by multiplying the net volume of gas
in the account by $1.50 per MCF (thousand cubic feet before Btu adjustment)
for the Properties;
(i) The amount of the Escrowed Funds (applicable to the agreed upon
values as outlined on Exhibit A ), if approval from the Railroad Commission
of Texas to recomplete the Shartle No. 1, Anderson County, Texas in the
Sub-Clarksville formation shall not have been obtained by October 31, 1995
or the mineral leases underlying the Shartle No. 1 are deemed invalid by
Buyer before October 31, 1995, and such title defect is not so cured by
Seller within thirty (30) days of such notice;
(j) An amount to be determined by Buyer upon delivery to Seller in
writing before September 29, 1995, the results of its field inspection
concerning any deficiencies relating to Environmental Matters and an
estimated cost to remediate such deficiencies if any are found. Seller shall
choose by October 31, 1995 to either 1) remediate same to Buyer's satisfaction;
2) reduce the purchase price by the amount of such estimated cost; or
3) terminate this Agreement without any further obligation between the
parties hereto should Buyer and Seller not agree to either options 1) or 2)
above.
(k) Any other amount agreed upon in writing by Buyer and Seller.
<PAGE>16
ARTICLE III
REPRESENTATION OF BUYER
CONCERNING PURCHASE OF PROPERTY
SECTION 3.1: Buyer's Representations
-----------------------
(a) Buyer represents to Seller that Buyer is engaged in the business of
exploring for and producing oil, gas and other minerals as an ongoing
business and thus possesses oil and gas expertise or has in Buyer's employ
qualified Geologists, Engineers, Professional Counsel or industry
knowledgeable personnel to competently evaluate reserves of oil and gas
remaining beneath the Properties represented by this Agreement, and, based
upon Buyer's appraisal of this property, Buyer has ascertained a market value
of $2,515,000.00 for Seller's ownership interest in the Properties and
Personalty and Existing Wells, as of the Effective Time.
(b) Buyer acknowledges Seller has made no representations, either
expressed or implied, as to the remaining oil and gas reserves recoverable
beneath the Properties represented in this Agreement.
(c) Buyer acknowledges that Seller has made no representations, either
expressed or implied, in regard to the value of the Properties, Personalty
and Existing Wells.
(d) Buyer is incorporated in the State of Texas.
ARTICLE IV
CLOSING
-------
SECTION 4.1: Actions to be Taken at Closing
------------------------------
At the time of Closing, the following events and actions shall occur:
(a) Seller shall execute and deliver to Buyer Assignments, Bills of Sale
and Conveyances covering Seller s interest in the Personalty and Oil and Gas
Leases, including Seller's ownership interest in the Existing Wells and
Properties described in the attached Exhibit "A", subject to any depth
limitation of record.
Said Assignments, Bills of Sale and Conveyances shall be without
warranties of merchantability or fitness for a particular purpose, either
express or implied except for those in Section 5.1(c). However, said
Assignments, Bills of Sale and Conveyances of Oil and Gas Leases shall be
with special warranty of title as against claims asserted by, through or
under Seller, but not otherwise, and shall also include a warranty against
mortgages, liens, judgments, security interests, and encumbrances of any kind
created by, through or under Seller, but not otherwise. Said Assignments,
Bills of Sale and Conveyances of Oil and Gas Leases shall be made specifically
subject to all of the terms and provisions of this Agreement, all of which
shall survive the Closing.
<PAGE>17
(b) Buyer shall make payment to Seller for the full remaining purchase
price in cash or immediately available funds and shall issue Seller a stock
certificate representing a minimum of 56,250 aggregate shares of fully paid
and nonassessable shares of Magnum Petroleum, Inc. restricted common stock,
$0.002 per share par value, free and clear of all liens and encumbrances.
The number of shares of such stock will be based upon the following:
The Common Stock consideration will be calculated based upon the greater
of the average of the closing price of Magnum stock ten (10) business days
prior to Closing as traded on the American Stock Exchange and $4.00 per share,
under the following formula:
$225,000 Number or restricted common
---------------------------- =
Average of Closing Price shares to be issued
(c) Seller shall deliver to Buyer all well files. Seller shall deliver
to Buyer completed and executed pertinent forms on the wells necessary for the
change of ownership. Buyer and Seller shall each deliver to the other such
other documents, certificates, opinions and materials as are required under
the provisions of this Agreement, including the accounting and funds in
payment thereof as provided for in Sections 2.4 and 2.5 herein.
(d) The Seller agrees to pay all sales taxes incurred in connection with
the conveyances and assignments made pursuant to this Agreement, if applicable.
SECTION 4.2: Conditions to Obligations of Buyer
----------------------------------
The obligations of Buyer pursuant to this Agreement are subject to the
conditions that on the Closing Date:
(a) All terms, covenants and conditions and warranties made by the
Seller in this Agreement shall be true and correct as of the Closing Date.
(b) No action or proceeding by or before any court or other governmental
body shall have been instituted or threatened to restrain, prohibit or
invalidate the transactions contemplated hereby or which might affect the
right of Buyer to own, control and enjoy the full benefit of the Personalty,
Existing Wells and the Properties after the Closing Date.
(c) Due Diligence Investigation. Buyer shall have completed its due
diligence investigation of the Properties on or before September 29, 1995
(the Due Diligence Period ), and the results of such investigation shall be
satisfactory to Buyer in all respects, as determined in Buyer's sole
discretion. Buyer shall notify Seller in writing of Buyer's determination of
whether or not the due diligence investigation was satisfactory to Buyer.
<PAGE>18
SECTION 4.3: Termination Events
------------------
This Agreement may, by written notice given at or prior to the Closing
in the manner hereinafter provided, be terminated:
(a) by either Buyer or Seller if a material default or breach shall be
made by the other party hereto with respect to the due and timely performance
of any of its covenants and agreements contained herein, or with respect to
the due compliance with any of its representations, warranties or covenants,
and such default cannot be cured and has not been waived;
(b) by Buyer if all of the conditions set forth in Section 4.2 shall
not have been satisfied on or before the Closing Date, other than through
failure of Buyer to fully comply with its obligations hereunder, and shall
not have been waived by Buyer on or before such date;
(c) by mutual written consent of Buyer and Seller; or
(d) by either Buyer or Seller if the Closing shall not have occurred,
other than through failure of any such party to fulfill its obligations
hereunder, on or before October 31, 1995 or such later date as may be mutually
agreed upon by the parties.
Each party s right of termination hereunder is in addition to any other
rights it may have hereunder or otherwise and the exercise of a right of
termination shall not be an election of remedies.
SECTION 4.4: Effect of Termination
---------------------
In the event this Agreement is terminated pursuant to Section 4.3, all
further obligations of the parties hereunder shall terminate; provided that,
if this Agreement is so terminated by a party because one or more of the
conditions to such party s obligations hereunder is not satisfied as a result
of the other party's willful failure to comply with its obligations under this
Agreement, the terminating party's right to pursue all legal remedies for
breach of contract or otherwise, including, without limitation, damages
relating thereto, shall also survive such termination unimpaired.
SECTION 4.5: Disbursement of Escrowed Funds
------------------------------
Upon termination of this Agreement, the Escrowed Funds shall be disbursed
as follows:
(a) If this Agreement is terminated by Buyer on or before the expiration
of the Due Diligence Period, the Escrowed Funds shall be disbursed to Buyer.
(b) If this Agreement is terminated for any reason after the expiration
of the Due Diligence Period, the Escrowed Funds shall be disbursed to Seller;
provided, however, that the Escrowed Funds may be disbursed to Buyer pursuant
to Section 2.5 (I) or (j).
<PAGE>19
SECTION V
REPRESENTATIONS AND WARRANTIES OF SELLER
----------------------------------------
SECTION 5.1: Representations and Warranties of Seller
----------------------------------------
Seller hereby represents and warrants to Buyer, that:
(a) This Agreement constitutes the valid and binding obligation of
Seller, enforceable against Seller in accordance with its terms.
(b) Seller will permit Buyer full access at all reasonable times on or
before September 29, 1995, or such other extension date as may be mutually
agreed upon in writing by Buyer and Seller.
(c) Seller has good and defensible title to the Real Property
Interests and tangible and intangible personal property owned by it that
comprise the Properties, free and clear of Liens, other than liens and
defects of title which do not, individually or in the aggregate, materially
detract from the value of the Assets or the use or enjoyment thereof in the
ordinary course of business.
The equipment associated with the operation of the Properties (i) is in
good operating condition, order and repair, subject to ordinary wear and tear,
and has been maintained in accordance with standard industry practice; (ii)
is capable of being used for the purpose for which it is intended without
present need for repair or replacement except in the ordinary course of the
business; (iii) conforms in all material respects with all applicable legal
requirements known to Seller; and (iv) in the aggregate provides the capacity
to enable Seller to engage in commercial operation on a continuous basis
(subject to normal maintenance and repair in the ordinary course). All of
the equipment constituting the operating of the Properties is adequate and
sufficient for all operations conducted by Seller in substantially the same
manner as conducted prior to the Closing.
All real and tangible personal properties held by Seller under lease are
held under valid and binding lease agreements that are in full force and
effect. To Seller s knowledge, Seller is not in default, and no notice of
alleged default has been received by Seller, under any such lease and no
lessor is in default or alleged to be in default thereunder. None of the
rights of Seller under any lease will be impaired by the consummation of the
transactions contemplated by this Agreement.
(d) To Seller's knowledge, all easements, rights-of-way, permits,
crossing agreements and surface rights included with the Properties are in
full force and effect and are valid and subsisting and freely assignable, and
all rentals and other payments due thereunder have been properly and timely
paid and all conditions necessary to keep them in force have been duly
performed.
<PAGE>20
(e) Environmental Matters
---------------------
(i) To Sellers knowledge, no written notice, notification, demand,
request for information, citation, summons, complaint or order has been
received, no complaint has been filed, no penalty has been assessed and no
investigation or review is pending or has been threatened by a governmental
entity or other party with respect to any (A) alleged violation by Seller of
any Environmental Laws, (B) alleged failure by Seller to have any environmental
permit, certificate, license, approval, registration or authorization required
in connection with the conduct of the Business or (C) Regulated Activity
conducted by Seller.
(ii) To Seller's knowledge, Seller has no material Environmental
Liabilities and there has been no release of Hazardous Substances into the
environment by Seller or with respect to any of its properties which has had,
or would reasonably be expected to have, a material adverse effect on Seller.
(iii) During the period of time Seller has owned the Properties, there
have been no mercury meters on or attached to any part of the Properties.
(iv) For the purposes of this Agreement, the following terms have the
following meanings:
"Environmental" Laws shall mean all Federal, state and local statutes,
laws, regulations, ordinances, rules, judgements, orders, decrees, codes,
plans, injunctions, permits, concessions, grants, franchises, licenses,
agreements, and governmental restrictions applicable to the Properties now in
effect and relating to human health, the environment or to emissions,
discharges or releases of pollutants, containments, Hazardous Substances or
wastes into the environment or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants, Hazardous Substances or wastes or the
clean-up or other remediation thereof.
"Environmental Liabilities" shall mean all liabilities, whether vested
or unvested, contingent or fixed, actual or potential, which (i) arise under
or relate to Environmental Laws and (ii) relate to actions occurring or
conditions existing on or prior to the Effective Time.
"Hazardous Substances" shall mean any toxic, radioactive, caustic or
otherwise hazardous substance, including glycol and petroleum, their
derivatives, by-products and other hydrocarbons, or any substance having any
constituent elements displaying any of the foregoing characteristics.
"Regulated Activity" shall mean any generation, treatment, storage,
recycling, transportation, disposal or release of any Hazardous Substances.
<PAGE>21
(f) Licenses and Permits. Seller possesses all the licenses, permits
---------------------
authorizations, approvals, registrations and other rights of every kind and
character ( Permits ), copies of all which have been delivered to Buyer.
Such Permits constitute all the Permits necessary under law or otherwise for
Seller to construct, own, operate, maintain and use the Assets in the manner
in which they are now being constructed, operated, maintained and used. Each
of such Permits and Seller's rights with respect thereto (i) is valid and
substituting, in full force and effect, and enforceable by Seller, and (ii)
following consummation of the transactions contemplated hereby, will continue
to be valid and subsisting in full force and effect, and enforceable by Buyer
without any consent or approval of any court or any federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign or third party; or in lieu of such
existing Permits, replacement or substitute Permits will be available to or
obtainable by Buyer at little or no cost in the ordinary course after
application by Buyer thereof. To Seller s knowledge, Seller is in compliance
in all material respects with the terms of such Permits. None of such Permits
have been, or to the knowledge of Seller, is threatened to be, revoked,
canceled, suspended or modified.
(g) Disclosure. No representation, warranty or covenant by Seller
-----------
contained in this Agreement or the Exhibits or Schedules hereto, or any
agreement, document or instrument to be delivered at the Closing by Seller,
contains or shall contain any untrue statement of a material fact or omits or
shall omit to state therein a material fact (other than those facts generally
recognized to be industry risks normally associated with the Properties)
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. Copies of all
documents furnished to Buyer in connection with this Agreement or pursuant
hereto are true and complete in all material respects. Seller knows of no
facts (other than those facts generally recognized to be industry risks
normally associated with the Properties) related to the Properties which
have not been disclosed in writing to Buyer which materially and adversely
affect or will materially and adversely affect such Properties or the ability
Seller to perform this Agreement.
<PAGE>22
ARTICLE VI
AGREEMENTS AND COVENANTS OF SELLER
----------------------------------
SECTION 6.1: Affirmative Covenants
---------------------
During the period from the Effective Time to the Closing Date, Seller has:
(a) Carried on the business with respect to the Personalty, Properties
and the Existing Wells in a prudent and diligent manner in accordance with
prevailing industry standards;
(b) Promptly notified Buyer of the receipt of any notice or claim,
written or oral, of default, breach by Seller, or of any termination or
cancellation of any material contract, lease or other agreements relating to
the Properties, Personalty or Existing Wells;
(c) Promptly notified Buyer of the loss of or damage to any of the
Personalty or Existing Wells;
(d) Given prompt notice to Buyer of any claims or litigation, threatened
or instituted or any other material event or occurrence involving or affecting
any of the Properties, Personalty or Existing Wells; and
(e) Reasonably cooperated with the Buyer in endeavoring to obtain
additional title and other information with respect to the Properties,
Personalty or Existing Wells.
<PAGE>23
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
SECTION 7.1: Representations and Warranties of Buyer
---------------------------------------
Buyer represents and warrants to Seller that:
(a) Buyer is Magnum Hunter Production, Inc.
(b) This Agreement constitutes the valid and binding obligation of Buyer,
enforceable against Buyer in accordance with its terms.
(c) Buyer is acquiring Seller's interest in the Personalty, Properties
and the Existing Wells as outlined on Exhibit "A" based upon its own physical
examination of the Properties, Existing Wells and Personalty as well as an
independent examination and inspection of the accounting, land, legal and
well files of Seller.
(d) The execution and delivery of this Agreement will not violate any
provision of or constitute a default under any statute, or any order, rule or
regulation of any court or governmental agency into which Buyer is subject.
(e) Upon cessation of production, Buyer will properly plug and abandon
all producing and/or non-producing wells upon said Properties which wells now
exist or which may exist in the future, in accordance with state and federal
regulatory requirements.
(f) Buyer has inspected the oil and gas properties outlined on Exhibit
"A" and satisfied itself as to the current operating condition of the
Properties.
(g) Buyer is qualified to do business in Texas.
<PAGE>24
ARTICLE VIII
Section 8.1 Securities Laws and Compliance
------------------------------
The parties will arrange for and effect all necessary procedures under
the requirements of applicable federal and state securities laws, including
those of the Securities and Exchange Commission and the state securities
boards promulgated thereunder to the extent that this Agreement is properly
consummated to comply with all federal and state securities registration
requirements, or to take full advantage of any appropriate exemptions
therefrom, and otherwise to be in accord with all federal and state securities
law anti-fraud restrictions.
A. KNOWLEDGE RESPECTING ACQUIRING PROCEDURES. Buyer and Seller each
------------------------------------------
represent, respectively, and acknowledge that:
1. In the case of Seller:
(a) Seller knows, or has had the opportunity to acquire, all
information concerning the business, affairs, financial
condition and prospects of Magnum Petroleum, Inc. which it
deems relevant to make a fully informed decision regarding
the consummation of the transaction contemplated hereby, and
(b) Seller has been supplied with, or had the opportunity to
review, copies of all Forms 10-KSB, 10- QSB and 8-K, and all
proxy statements filed by Magnum Petroleum, Inc. within the
two year period immediately preceding the date of this
Agreement. Without limiting the foregoing, Seller understands
and acknowledges that neither Magnum Petroleum, Inc. nor
anyone acting on its behalf has made any representations or
warranties other than those contained herein regarding Magnum
Petroleum, Inc. or the future conduct of Magnum's business or
of each of its subsidiaries business, and Seller has not
relied upon any representations or warranties other than those
contained herein.
2. In the case of Buyer:
(a) Buyer has had the opportunity to acquire all information
concerning the Properties which it deems relevant to make a
fully informed decision regarding the consummation of the
transaction contemplated hereby.
<PAGE>25
B. STATUS OF SHARES TO BE ISSUED. Seller agrees, acknowledges, and
------------------------------
confirms that it has been advised and understands as follows:
1. It is acquiring the securities (shares of Magnum Petroleum, Inc.)
without a view to any distribution or resale, which may be made
without violating the registration provisions of the Securities
Act of 1933, as amended (the "1933 Act") or applicable state law.
The shares of Magnum Petroleum, Inc. are "restricted securities"
within the meaning of Rule 144 under the 1933 Act and have not
been registered under the 1933 Act or the laws of any state:
2. There shall be endorsed on the certificates evidencing the shares
of Magnum Petroleum, Inc. stock delivered at closing legends
substantially similar to the following:
"THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR THE SECURITIES
LAWS OF ANY STATE OR JURISDICTION. THE SHARES MAY NOT BE SOLD,
TRANSFERRED, PLEDGED OR DISTRIBUTED IN THE ABSENCE OF: (1) AN
EFFECTIVE REGISTRATION STATEMENT REGISTERING THE SHARES UNDER THE
SECURITIES ACT OF 1933, ANY APPLICABLE STATE LAW, OR IN LIEU
THEREOF, OR (2) AN OPINION OF COUNSEL, WHICH OPINION IS
SATISFACTORY TO THE ISSUER OF THE SHARES, TO THE EFFECT THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACTS".
"A FULL STATEMENT OF ALL THE DESIGNATIONS, PREFERENCES, LIMITATIONS,
AND RELATIVE RIGHTS OF THE SHARES OF EACH CLASS OF SHARES WHICH THE
CORPORATION IS AUTHORIZED TO ISSUE IS SET FORTH IN THE ARTICLES OF
INCORPORATION AND THE AMENDMENTS THERETO ON FILE IN THE OFFICE OF
THE SECRETARY OF STATE AND THE CORPORATION WILL FURNISH A COPY OF
SAID STATEMENT TO THE RECORD HOLDER OF THIS CERTIFICATE WITHOUT
CHARGE ON WRITTEN REQUEST TO THE CORPORATION AT ITS PRINCIPAL PLACE
OF BUSINESS."
3. Except under certain limited circumstances, the restrictions on the
transfer of the securities will also apply to the Property and any
and all shares of capital stock or other securities issued to or
otherwise acquired with respect to such shares including, without
limitation, shares and securities issued or acquired as a result of
any stock dividend, stock split or exchange or any distribution of
shares or securities pursuant to any corporate reorganization,
reclassification or similar event.
<PAGE>26
C. INDEMNIFICATION BY PARTIES. If at any time in the future Seller should
---------------------------
offer, sell, assign, pledge, hypothecate, transfer, or otherwise dispose
of any of securities or interests in the Properties without registration
under the 1933 Act, as amended, or such similar federal statute as may
then be in effect, each of the parties hereby agree to indemnify and hold
harmless the other party against any and all claims, liabilities,
penalties, costs and expenses that may be asserted against or suffered by
such party as a result of such disposition.
D. INVESTMENT CERTIFICATE. Seller will execute an investor representation
-----------------------
letter, substantially in the form set out in Exhibit "C" hereto,
acknowledging the restrictions on the Common Stock issued pursuant to this
Agreement.
E. REGISTRATION RIGHTS OF SELLER. Magnum, within ninety (90) days after
------------------------------
Closing, will register certain of its common stock or other securities
under the Securities Act of 1933 (for the purposes of this Section, the
"Act") (other than pursuant to a registration statement for Forms S-4 or
S-8 or similar or successor form), and will at such time promptly give
written notice to Seller of its intention so to do. Such notice from
Magnum shall set forth the types of securities to be registered, and other
information, if applicable, such as the maximum proposed offering price,
commissions and discounts in connection therewith, and other relevant
information. For the purposes of these registration rights, the common
stock issued to Seller pursuant to this Agreement, is herein referred to
as "Registrable Shares". Upon the written request from Seller, given
within fifteen (15) banking days after receipt of any such notice, to
register any Registrable Shares (which request shall specify the common
stock intended to be sold or disposed of by such stockholders and shall
state the intended method of disposition of such common stock by the
prospective Seller), Magnum shall use all commercially reasonable
efforts to cause all such Registrable Shares to be registered under the
Act and applicable state law so that such Registrable Shares may be sold
at such times and in such manner as Seller determine in accordance with
the terms of the applicable prospectus.
<PAGE>27
ARTICLE IX
MISCELLANEOUS
-------------
SECTION 9.1: Notice
------
Any notice or other communication required or permitted to be given
under this Agreement must be in writing, and may be given by depositing the
same in the United States mail, certified delivery, return receipt requested,
properly addressed as provided below. Notice deposited in the mail in the
manner provided above shall be effective and shall be deemed received upon
the expiration of three business days.
For purposes of notices hereunder, the addresses of the parties shall be
as follows:
Seller: Reef Exploration, Inc.
1901 N. Central Expressway
Suite 300
Richardson, TX 75080
Attn: Mr. H. Walt Dunigan
Land Manager
Buyer: Magnum Hunter Production, Inc.
600 East Las Colinas Blvd., Suite 1200
Irving, TX 75039
Attn: Gary C. Evans
President
Any party may change its address for the giving of notice hereunder at
any time by giving notice of change in the manner specified above.
SECTION 9.2: Survival of Representations, Warranties, Covenants and Agreements
-----------------------------------------------------------------
The representation, warranties, covenants and agreements of Buyer and
Seller set forth herein shall survive the Closing.
SECTION 9.3: Waiver
------
No term or condition of this Agreement shall be deemed to have been
waived nor shall there be any estoppel to enforce any provision of this
Agreement except by written instrument of the party charged waiver or
estoppel.
SECTION 9.4: Entire Agreement
----------------
This Agreement constitutes the entire agreement and understanding between
the parties hereto and may not be modified or amended except in writing signed
by the parties hereto:
SECTION 9.5: Expense
-------
Buyer and Seller shall each pay their respective expenses and costs in
connection with this Agreement and the transactions contemplated thereby.
<PAGE>28
SECTION 9.6: Heading
-------
Descriptive headings are used for convenience only and shall not control
or affect the meaning or construction of any provision of this Agreement.
SECTION 9.7: Applicable Law
--------------
This Agreement shall be governed by and interpreted in accordance with
laws of the State of Texas applicable to contracts made and performed entirely
therein.
SECTION 9.8: Binding Effect
--------------
This Agreement shall be binding upon and inure to the benefit of the
parties hereto, and their successors and assigns; provided, no assignment by
either party shall be made without the express written consent of the other
party and if such consent is granted, no assignment shall relieve such party
of any of its obligations hereunder.
SECTION 9.9: Assignment of Agreements and Covenants
--------------------------------------
Neither Buyer nor Seller shall assign or delegate this Agreement to a
third party without the prior written consent of the other party hereto.
SECTION 9.10: Indemnification/Risk of Loss
----------------------------
Risk of Loss to the Properties, Existing Wells and Personalty shall be
upon Seller until the time of Closing. At Closing, said risk of loss shall
pass to Buyer. Notwithstanding anything to the contrary herein, Seller shall
indemnify and hold Buyer free and harmless from liability for any and all
costs, expenses and causes of action of every kind and character in connection
with the Personalty, Properties and the Existing Wells for events occurring
prior to the Closing Date. Likewise, notwithstanding anything to the contrary
herein, Buyer shall indemnify and hold Seller free and harmless from liability
for any and all costs, expenses and causes of action of every kind and
character in connection with the Personalty, Properties and the Existing Wells
for events occurring after the Closing Date.
SECTION 9.11: Signature in Counterparts
-------------------------
This Agreement may be signed in multiple counterparts by the Buyer and
Seller, each of which, when taken together, shall constitute the original
document.
SECTION 9.12: Brokers
-------
Each party agrees that it will hold the other party harmless from any
claim by any broker or finder asserting it was employed by such party in
connection with the transactions contemplated hereby.
SECTION 9.13: Post Closing Signatures
-----------------------
Each of the parties hereto agree to execute any and all mutually-
acceptable documents so as to vest title to Buyer in the interests and the
properties outlined on the attached Exhibit "A", which is attached hereto and
incorporated herein.
<PAGE>29
ARTICLE X
SPECIAL PROVISIONS
------------------
SECTION 10.1: Distribution of Monies and Stock Among Seller:
----------------------------------------------
Buyer and Seller agree all monies payable to Seller shall be paid by
wire transfer according to written instructions received from Seller or
Cashier's Check in the following amounts and to the following parties as
shown below:
Reef Exploration, Inc. $2,266,000.00
56,250 s/s Magnum Petroleum Inc. Common Stock (minimum) 225,000.00
-------------
TOTAL $2,491,000.00
"SELLER"
WITNESS: REEF EXPLORATION, INC.
________________________ /s/ Michael J. Mauceli
President
"BUYER"
ATTEST: MAGNUM HUNTER PRODUCTION, INC.
(Corporate Seal)
________________________ /s/ Gary C. Evans
Assistant Secretary Gary C. Evans, President
BUYER'S PARENT COMPANY
ATTEST: MAGNUM PETROLEUM, INC.
(Corporate Seal)
_________________________ /s/ Stanley McCabe
Assistant Secretary Stanley McCabe
Vice President
<PAGE>30
ACKNOWLEDGMENTS
STATE OF TEXAS
COUNTY OF DALLAS
The foregoing instrument was acknowledged before me this the ___ day of
September, 1995, by___________________________as_____________________of Reef
Exploration, Inc. on behalf of the company.
______________________________
Notary Public
My Commission Expires:
- ----------------------
STATE OF TEXAS
COUNTY OF DALLAS
The foregoing instrument was acknowledged before me this the ___ day of
September, 1995, by GARY C. EVANS, as President of Magnum Hunter Production,
Inc., on behalf of the corporation.
______________________________
Notary Public
My Commission Expires:
- ---------------------
STATE OF TEXAS
COUNTY OF DALLAS
The foregoing instrument was acknowledged before me this the ___ day of
October, 1995, by STANLEY McCABE, as Vice President of Magnum Petroleum,
Inc., on behalf of the corporation.
______________________________
Notary Public
My Commission Expires:
- ----------------------
<PAGE>31
EXHIBIT "A"
To That Purchase and Sale Agreement By and Among Reef Exploration, Inc.,
as Seller, and Magnum Hunter Production, Inc., as Buyer, dated this 13th
day of September, 1995.
<TABLE>
<CAPTION>
WORKING NET REVENUE
WELL NAME COUNTY/STATE INTEREST INTEREST
- ---------- ------------ -------- -----------
<S> <C> <C> <C>
Alexander #1 Wilbarger, TX 1.0000000 .78000000
Alexander #3 Wilbarger, TX 1.0000000 .78000000
Hattie May #1 Wilbarger, TX 1.0000000 .78000000
Owen Estate #1 Wilbarger, TX 1.0000000 .78000000
Owen Estate #3 Wilbarger, TX 1.0000000 .78000000
Smith #1 Wilbarger, TX 1.0000000 .78000000
Arkla #1 Cass, TX 1.0000000 .75000000
Ashley #1 Anderson, TX 1.0000000 .81937500
Shartle <F1> Anderson, TX 1.0000000 .77316125
Florence Moore #1 Clark, KS 1.0000000 .75000000
Thomas #1 Clark, KS 1.0000000 .75000000
Raschhaupt #2 Victoria, TX 1.0000000 .78000000
Stanaland Ranch #3B Stonewall, TX 1.0000000 .78000000
Stanaland Ranch #3R Stonewall, TX 1.0000000 .78000000
<FN>
<F1> This well is being re-completed in the Sub-Clarksville formation.
</FN>
</TABLE>
* Owen Estate #1 and #3 have been combined into Owen Estate #1.
<PAGE>32
EXHIBIT "B"
To that Purchase and Sale Agreement By and Among Reef Exploration, Inc.,
as Seller, and Magnum Hunter Production, Inc., as Buyer, dated this 13th day
of September, 1995
None
<PAGE>33
EXHIBIT "A"
To the Escrow Agreement, dated September 13, 1995 between Magnum Hunter
Production, Inc., a Texas corporation (the Depositor ), Reef Exploration,Inc.,
a Texas corporation (the Other Party )
and
First Interstate Bank of Texas, N.A. (the Escrow Agent )
1. The Deposit Consists of:
One Hundred Thousand and No/100 U.S. Dollars ($100,000.00) together with
any interest of other earnings accrued thereon.
2. The Escrow Agent is instructed as follows:
(a) The Escrow Agent shall release the Deposit in accordance with the
written instructions signed by an authorized officer of the Other
Party and an authorized officer of the Depositor stating that the
transactions contemplated by that certain Asset Purchase and Sale
Agreement dated September 13, 1995, but effective as of 7:00 a.m.
Central Daylight Savings Time, on August 1, 1995, by and between
the Depositor, and the Other Party, have been consummated.
(b) The Escrow Agent shall release the Deposit or a portion of the
Deposit, to the Depositor upon receipt on or before October 31,
1995 of a written instruction signed by an authorized officer of
the Depositor stating that the Depositor has a claim for
environmental remediation under Section 2.5 of the Asset Purchase
and Sale Agreement.
(c) The Escrow Agent shall release the Deposit to the Depositor prior
to October 31, 1995 upon receipt of a written instruction by an
authorized officer of the Depositor stating that the approval
from the Railroad Commission of Texas has not been received to
recomplete the Shartle No. 1, Anderson County, Texas well.
(d) The Escrow Agent shall release the Deposit to the Depositor prior
to October 31, 1995 upon receipt of a written instruction by an
authorized officer of the Depositor stating that the mineral
leases underlying the Shartle No. 1 well are deemed invalid by
Depositor under Section 2.5 of the Asset Purchase and Sale
Agreement.
(e) The Escrow Agent shall release the Deposit, or the remaining
portion of the Deposit to the Other Party in the event (i) the
Escrow Agent does not receive any written instructions in
accordance with subparagraphs (b) , (c) or (d) above on or before
October 31, 1995 or (ii) there are funds remaining after October
31, 1995.
(f) The Escrow Agent shall release the Deposit to the Depositor or
the Other Party upon receipt of a written instruction signed by
an authorized officer of such party directing that the Deposit be
released to the other party.
<PAGE>34
(g) The Escrow Agent shall release the Deposit in accordance with a
joint written instruction of the Depositor and the Other Party
signed by an authorized officer of each such party.
3. The Deposit shall be invested by Escrow Agent as follows:
The Deposit shall be invested in the Fidelity Treasury Cash Portfolio.
4. Escrow Agent's fees and expenses relating to the Deposit shall be paid by
the party to whom the Deposit is released at the time the Deposit is
released.
<PAGE>35
EXHIBIT "C"
To That Purchase and Sale Agreement By and Among Reef Exploration, Inc.,
as Seller, and Magnum Hunter Production, Inc., as Buyer, dated this 13th
day of September, 1995.
INVESTMENT CERTIFICATE
The undersigned corporation, Reef Exploration, Inc. (herein referred to
as "Reef"), hereby warrants and represents to Magnum Hunter Production, Inc.
the following:
1. That in acquiring 56,250 shares of voting common stock of Magnum
Petroleum, Inc., warrant that they are taking such shares for
investment purposes only and fully understand the concept.
2. That Reef considers himself an "accredited investor" as that term
is known in the securities industry in that he does not need nor
require the protection afforded to him by filing of a registration
statement with the United States Securities and Exchange Commission
in regard to this transaction.
3. That Reef has other investments and financial commitments which
enable him to take the aforementioned shares for a long-term
indefinite investment period.
4. The parties hereto have agreed that all shares being acquired are
"restricted securities" as that term is defined under SEC Rule 144
and may have to be held for an indefinite period of time.
Certificates representing the restricted securities will have a
restrictive legend.
5. It is understood by Reef that transfer by it of the restrictive
securities which are the subject of this Investment Certificate
will not be effected unless a Registration Statement is in effect
with regard thereto or unless an exemption from registration is
available.
DATED this ____ day of September, 1995.
Reef Exploration, Inc.
--------------------------------
Name:___________________________
Title:__________________________
<PAGE>36
