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) March 31, 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)
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Page 1 of ____ pages contained in the sequential
numbering system The Exhibit Index may be found on Page
___ of the sequential numbering system.
<PAGE>
Item 2. Recent Developments
On March 31, 1995, Hunter Resources, Inc. closed on an acquisition of domestic
producing oil and gas properties for $1.4 million from a Midland, Texas based
independent. The purchase price was comprised of $1.2 million cash, $200,000 in
restricted common stock of Hunter, and had an effective date of January 1, 1995.
The properties are concentrated in four fields in West Texas and Eastern New
Mexico and include ownership interest in 25 wells, 23 of which the Company or
its subsidiary have assumed operations. The properties have proved producing
reserves estimated by the Company's petroleum engineers of 28,472 barrels of
oil/condensate and 2.416 billion cubic feet of natural gas to the net interest
acquired. The future net revenues from these proved producing properties is
estimated at $3,622,880 with a discounted present worth at 10% of $1,960,533.
Item 7. Financial Statements and Exhibits.
Sequentially
Numbered Page
(a) Financial Statements of the Business Acquired: 3
Accountants' Report
Historical Summary of Revenue and Direct Operating Expenses
for the Year Ending March 31, 1994 and 1995 4
Notes to Historical Summary of Revenues and Direct Operating
Expenses for the Year Ending March 31, 1994 and 1995 5
(b) Pro forma financial information:
Pro Forma Consolidated Financial Information (unaudited) 6
Pro Forma Consolidated Statement of Operations (unaudited)
For the Twelve Months Ended December 31, 1994 7
Pro Forma Consolidated Statement of Operations (unaudited)
For the Three Months Ended March 31, 1995 8
Notes to Unaudited Pro Forma Consolidated Statements of
Operations 9
(c) Exhibits:
Agreement to Acquire Assets 10
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: September 26, 1995 HUNTER RESOURCES, INC.
By: /s/ Gary C. Evans
Gary C. Evans
President
<PAGE>
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 March 31, 1995, for the years ending
March 31, 1995 and 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 March 31, 1995, for the years ending March 31, 1995 and
1994, in conformity with generally accepted accounting principles.
HEIN + ASSOCIATES LLP
August 15, 1995
Dallas, Texas
<PAGE>
HUNTER RESOURCES, INC. AND SUBSIDIARIES
PROPERTIES ACQUIRED MARCH 31, 1995
Historical Summary of Revenue and Direct
Operating Expenses for the years
ending March 31, 1994 and 1995
For the Years Ended
March 31,
1994 1995
--------------------------
Oil and gas sales $ 671,000 $ 528,000
Direct lease operating (169,000) (145,000)
--------------------------
Net Revenues $ 502,000 $ 383,000
--------------------------
See Notes to Historical Summary
<PAGE>
HUNTER RESOURCES, INC. AND SUBSIDIARIES
Properties Acquired March 31, 1995
Notes to Historical Summary of Revenues and Direct Operating Expenses for Years
Ended March 31, 1994 and 1995
1. Basis of Presentation
The accompanying Historical Summary of Revenue and Direct Operating
Expenses relates to the operations of the oil and gas properties acquired by
Hunter Resources, Inc. (Company) on March 31, 1995. The properties were acquired
in exchange for 516,129 shares of restricted common stock valued at $200,000 and
$1,213,000 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. 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-X Rule 1-02(v) of the
Securities Exchange Act of 1934.
<PAGE>
HUNTER RESOURCES, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
(unaudited)
The following unaudited pro forma consolidated statements of operations of
the Company are based on the historical consolidated statements of operations of
the Company for the year ended December 31, 1994 and the three months ended
March 31, 1995, adjusted to give effect for the acquisition of the oil and gas
properties acquired March 31, 1995 as if the acquisition had been consummated at
the beginning of each respective period presented.
The pro forma consolidated 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 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 three months ended
March 31, 1995, which have been filed with the Securities and Exchange
Commission.
<PAGE>
HUNTER RESOURCES, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
For the Twelve Months ended December 31, 1994
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<S> <C> <C> <C> <C>
Hunter Arrington Proforma Combined
Historical Historical Adjustments Proforma
------------------------------------------------------------------------------------
REVENUES:
Gas gathering and marketing $ 443,000 $ $ $ 443,000
Oil and gas sales 581,000 563,000 1,144,000
Oil field services and commissions 1,122,000 A 43,000 1,165,000
Interest 26,000 26,000
Other 184,000 184,000
TOTAL REVENUES ------------------------------------------------------------------------------------
2,356,000 563,000 43,000 2,962,000
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EXPENSES:
Purchases of natural gas 262,000 262,000
Pipeline operations 76,000 76,000
Lease operating 412,000 153,000 565,000
Cost of services 654,000 654,000
Depreciation, depletion,
amortization and impairment 263,000 B 153,000 416,000
General and administrative 513,000 C 6,000 519,000
Interest 44,000 D 120,000 164,000
Legal settlement expenses 117,000 117,000
TOTAL EXPENSES ------------------------------------------------------------------------------------
2,341,000 153,000 279,000 2,773,000
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NET INCOME 15,000 410,000 (236,000) 189,000
PREFERRED DIVIDENDS (9,000) (9,000)
NET INCOME APPLICABLE TO ------------------------------------------------------------------------------------
COMMON STOCK
$ 6,000 $ 410,000 $ (236,000) $ 180,000
NET INCOME PER SHARE ------------------------------------------------------------------------------------
(primary and fully diluted)
* $ 0.02 $ (0.01) $ 0.01
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</TABLE>
*Less than $.01 per share
See notes to Consolidated Pro Forma Statements of Operations
<PAGE>
HUNTER RESOURCES, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
For the Three Months ended March 31, 1995
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<S> <C> <C> <C> <C>
Hunter Arrington Proforma Combined
Historical Historical Adjustments Proforma
------------------------------------------------------------------------------------
REVENUES:
Gas gathering and marketing $ 55,000 $ $ $ 55,000
Oil and gas sales 151,000 123,000 274,000
Oil field services and commissions 128,000 A 7,000 135,000
Interest 6,000 6,000
Other 60,000 60,000
TOTAL REVENUES ------------------------------------------------------------------------------------
400,000 123,000 7,000 530,000
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EXPENSES:
Purchases of natural gas 32,000 32,000
Pipeline operations 13,000 13,000
Lease operating 87,000 32,000 119,000
Cost of services 96,000 96,000
Depreciation, depletion,
amortization and impairment 68,000 B 37,000 105,000
General and administrative 79,000 C 1,500 80,500
Interest 19,000 D 32,000 51,000
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TOTAL EXPENSES 394,000 32,000 70,500 496,500
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NET INCOME $ 6,000 $ 91,000 $ (63,500) $ 33,500
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NET INCOME PER SHARE
(primary and fully diluted)
* * * *
------------------------------------------------------------------------------------
</TABLE>
* Less than $.01 per share
See notes to Consolidated Pro Forma Statements of Operations
<PAGE>
HUNTER RESOURCES, INC. AND SUBSIDIARIES
Notes to Unaudited Pro Forma Consolidated Statements of Operations
The following adjustments have been reflected in the accompanying Pro Forma
Consolidated Statements of Operations for the year ended December 31, 1994 and
the three months ended March 31, 1995 to give effect for the acquisition of oil
and gas properties on March 31, 1995.
A) To reflect overhead fee income charged to outside owners on the
acquired properties for which operating rights were also acquired.
B) To reflect additional depreciation and depletion on oil and gas
properties as recalculated using the full cost method.
C) To reflect additional general and administrative costs associated with
the assumption of operator's duties on the acquired properties.
D) To reflect interest expense associated with the financed portion of
the acquisition.
<PAGE>
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT ("Agreement"), dated as of this 31st day
of March, 1995, is executed by and among David H. Arrington, Shelley K.
Arrington and David H. Arrington Oil & Gas, Inc., hereinafter referred to as
"Sellers", and Hunter Resources, 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 Sellers or David H. Arrington Texas & New Mexico,
Inc., a wholly owned subsidiary of David H. Arrington Oil & Gas, Inc.,
hereinafter sometimes referred to as the "Subsidiary", have in the oil, gas
and/or mineral leases as more particularly described in Exhibits "A" and "B"
which are attached hereto and incorporated herein, as of the Closing date,
excluding all mineral interests and royalty interests in the Underwood No. 2
well and acquired from Christine S. Whitehill in the Vest A and B wells and the
Kermit A wells, all ratifications, extensions and renewals thereof, any
unitization, farmout or force 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 Sellers in or to any accounts
receivable, money held in escrow or suspense accounts, or future receipts
attributable to Sellers' 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 Sellers 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 Sellers and the Subsidiary have in
or to any personal property, and improvements located on the Properties
described on Exhibits "A" and "B", 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>
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 Exhibits "A" and "B", which are
attached hereto and incorporated herein.
SECTION 1.4: The Subsidiary
--------------
David H. Arrington Texas & New Mexico, Inc. owns the Properties described
on the attached Exhibit "B".
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 Sellers' right, title, and interest in the Properties, Existing
Wells and Personalty and all of the issued and outstanding common stock of the
Subsidiary from Sellers and Sellers agree to sell, transfer, assign and convey
to Buyer the Sellers' right, title and interest in the Properties, Existing
Wells and Personalty as further described on Exhibit "A" and all of the issued
and outstanding common stock of the Subsidiary.
SECTION 2.2: Purchase Price
--------------
The purchase price agreed to be paid by Buyer for Sellers' right, title and
interest in the Properties, Existing Wells and Personalty and all of the issued
and outstanding common stock of the Subsidiary is One Million Four Hundred
Thirteen Thousand Four Hundred Dollars and Fifteen Cents ($1,413,400.15) (the
"Base Purchase Price"), subject to any applicable purchase price adjustment as
provided for herein. The total consideration will be structured as follows:
(a) One Million Two Hundred Thirteen Thousand Four Hundred Dollars and
Fifteen Cents ($1,213,400.15) cash due at the time of Closing subject
to any applicable purchase price adjustment as provided for herein;
and
(b) Five Hundred Sixteen Thousand One Hundred Twenty-Nine (516,129) fully
paid and nonassessable shares of Hunter Resources, Inc. restricted
common stock, $0.10 par value free and clear of all liens and
encumbrances which shall be exchanged for all of the issued and
outstanding shares of common stock of David H. Arrington Texas & New
Mexico, Inc.
Said purchase price is allocated as follows:
Lease Well Equipment $ 100,000.00
Leasehold 1,313,400.15
-------------
Total $1,413,400.15
=============
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 Sellers 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
<PAGE>
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.
SECTION 2.3: Effective Time, Closing Date and Closing
-----------------------------------------
The "Effective Time" of the sale shall be January 1, 1995, at 12:01 a.m.
CST. Buyer's purchase of Sellers' interest pursuant to this Agreement shall take
place on or before 2 p.m. Central Daylight Time on March 31, 1995, which date
and time shall herein be referred to as the "Closing Date". The place of
"Closing" shall be at the offices of Sellers, located at 214 West Texas, Suite
400, Midland, Texas 79701.
SECTION 2.4: Accounting for Certain Operating Costs from January 1, 1995 to
Closing Date
------------------------------------------------------------------
(a) Buyer shall be responsible for all operating costs after Closing Date,
and Sellers shall be responsible for all operating costs incurred prior to
Closing Date.
SECTION 2.5: Base Purchase Price Adjustment
------------------------------
The Base Purchase Price shall be increased by:
(a) All expenditures paid by Sellers 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 Sellers 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 "E" 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 Sellers;
and shall be reduced by:
(e) All proceeds received by Sellers 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 Sellers);
(f) All other proceeds received by Sellers which are attributable to the
Properties from the Effective Time to Closing;
(h) All overproduced gas imbalances as of the Effective Date as reflected
on Exhibit "E" 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; and
(i) Any other amount agreed upon in writing by Buyer and Sellers.
<PAGE>
ARTICLE III
REPRESENTATION OF BUYER
CONCERNING PURCHASE OF PROPERTY
SECTION 3.1: Buyer's Representations
-----------------------
(a) Buyer represents to Sellers 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 $1,400,000 for Sellers'
ownership interest in the Properties and Personalty and Existing Wells, as of
the Effective Time.
(b) Buyer acknowledges Sellers have 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 Sellers have made no representations, either
expressed or implied, in regard to the value of the Properties, Personalty and
Existing Wells.
(d) Buyer represents to Sellers that Buyer, or its qualified agents and
personnel, has satisfied itself as to environmental and regulatory compliance by
Sellers and its predecessors, in connection with the Existing Wells, Personalty
and Properties.
(e) Buyer is incorporated in the State of Pennsylvania and is licensed to
do business 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) Sellers shall execute and deliver to Buyer Assignments, Bills of Sale
and Conveyances covering Sellers' interest in the Personalty and Oil and Gas
Leases, including Sellers' interest ownership 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. 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 Sellers, 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 Sellers, 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>
(b) David H. Arrington Oil & Gas, Inc. shall endorse to Hunter Resources,
Inc. the share certificates representing all of the issued and outstanding
shares of David H. Arrington Texas & New Mexico, Inc.
(c) Buyer shall make payment to Sellers for the full remaining purchase
price in cash or immediately available funds and shall issue to David H.
Arrington a certificate(s) representing 516,129 shares of fully paid and
nonassessable shares of restricted common stock, $0.10 per share par value, free
and clear of all liens and encumbrances.
(d) Sellers shall deliver to Buyer all well files. Sellers shall deliver to
Buyer completed and executed pertinent forms on the wells necessary for the
change of ownership. Buyer and Sellers 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.
(e) The Sellers agree to pay all sales taxes incurred in connection with
the conveyances and assignments made pursuant to this Agreement, if applicable.
(f) Gary C. Evans shall execute a guaranty on a form acceptable to Sellers
guaranteeing the put option described in Section 4.3 below.
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 Sellers
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.
SECTION 4.3: Post-Closing Obligations of Buyer and Sellers
---------------------------------------------
(a) Beginning one year after Closing, and continuing for a period ending
December 31, 1996, Sellers will have the option to "put" any portion or all of
the restricted common stock of Hunter back to Hunter for a cash consideration of
$0.3875 per share, and Hunter agrees to pay such amount for the stock to Sellers
within fifteen business days of the exercise of the option.
(b) Gary C. Evans (hereinafter referred to as "Evans") will personally
guaranty said "put" option, however, should Buyer or Evans offer to purchase for
cash and payable within 15 days of such offer, all 516,129 shares of the
restricted Common Stock beginning one (1) year after Closing, but prior to
December 31, 1996, at a price of $0.3875 per share or better, and Sellers elect
not to accept such offer, then the "put" agreement outlined in Section 4.3(a)
above, along with the personal guaranty of Evans will then expire;
<PAGE>
SECTION V
REPRESENTATIONS AND WARRANTIES OF SELLERS
SECTION 5.1: Representations and Warranties of Sellers
-----------------------------------------
Sellers hereby represent and warrant to Buyer, that:
(a) This Agreement constitutes the valid and binding obligation of Sellers,
enforceable against Sellers in accordance with its terms.
(b) Prior to Closing only, Sellers have or will permit Buyer full access at
all reasonable times to the Personalty and the Existing Wells, and all records,
files and documents of Sellers are available to Sellers relating to the
Personalty, Properties and Existing Wells. Sellers shall allow Buyer to
photocopy any and all agreements, title opinions, logs, test data, drilling
reports, purchaser statements, gauge reports, pumper reports and any other
information or data in possession of Sellers regarding the Properties.
(c) Buyer will acquire one hundred percent (100%) of Sellers' and the
Subsidiary's interest in the Properties, excluding the mineral interests and
royalty interests described in the first paragraph of Section 1.1 hereof. The
percentages shown on the attached Exhibits "A" and "B" are believed by Sellers
to be correct, however, Buyer agrees that it has satisfied itself as to the
working interest and net revenue interest owned by Sellers in each Property. The
assignment from Sellers to Buyer will be made without warranty of title, either
express or implied, and will contain unilateral indemnities regarding general
liabilities as well as environmental liabilities with Seller's indemnities being
limited to matters arising prior to the effective time and Buyer's indemnities
relating to matters arising after the effective time. All equipment will be sold
in an AS IS, WHERE IS condition.
(d) There are no actions, suits, proceedings or governmental investigations
or inquiries pending, and to their knowledge, threatened against Sellers or
their asset operations or business which seek to delay, prevent or hinder or
which might be adversely determined to affect title to or the value of the
Personalty, Existing Wells or the Properties.
(e) Sellers have either discharged or caused to be discharged all taxes of
every kind and character, as the same shall have become due, attributable or
relating to Sellers' ownership of the Personalty, Properties, or Existing Wells.
(f) Neither the Personalty, Properties nor the Existing Wells are subject
to any unrecorded preferential rights of purchase, restrictions on assignments,
joint venture agreements, operating agreements, reversionary interest or other
burdens, restrictions, or limitations with respect to the operation thereof,
except or as set forth hereinafter in Exhibit .
(g) The Personalty, the Existing Wells and the Properties are not burdened
by any liens, encumbrances, mortgages, judgements or security interests, nor
have Sellers made any material commitment relating thereto (except in the
ordinary course of business), that will not have been released as of Closing.
(h) The execution and delivery of this Agreement and the consummation of
all the transactions contemplated hereby by the Sellers has been approved by all
necessary action on the part of such Sellers.
<PAGE>
(i) The written information delivered to Buyer by Sellers which relates to
the Personalty, Existing Wells and the Properties and all well data and other
information presented in the written material delivered to Buyer is to the best
of Sellers knowledge, true, complete and accurate.
(j) Sellers shall not be obligated to provide to Buyer nor pay for on
behalf of Buyer any title opinions or supplements thereto or abstracts of title
that are not in existence as of the date of the Letter of Intent executed by and
between Sellers and Buyer;
(k) Buyer and Sellers agree that in the event Closing under this Agreement
does not occur on or before March 31, 1995, or such other extension date as may
be mutually agreed upon in writing by Buyer and Sellers, this Agreement shall be
null and void and of no further force and effect. Buyer shall return to Sellers
all documentation, files and records pertaining to the Properties, Existing
Wells and Personalty;
(l) It is expressly understood by Buyer that Sellers have from time to time
injected oil/condensate into the producing formation of the Britt Phillips #2
Well located in the Eumont Field, Lea County, New Mexico to enhance the
production performance of this well and Buyer has taken such actions by Sellers
into account in its economic evaluation of said property.
NOTWITHSTANDING ANY OF THE WARRANTIES AND REPRESENTATIONS MADE HEREIN, THE
PROPERTIES, PERSONALTY AND EXISTING WELLS ARE TO BE SOLD AS IS, WHEREAS AND WITH
ALL FAULTS, AND SELLERS MAKE NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED,
IN FACT OR IN LAW, WITH RESPECT TO THE ORIGIN, QUANTITY, QUALITY, OPERATING
CONDITION, SAFETY OF EQUIPMENT, TITLE TO PERSONAL PROPERTY, TITLE TO REAL
PROPERTY, COMPLIANCE WITH THE GOVERNMENT REGULATIONS, MERCHANTABILITY, FITNESS
FOR ANY PARTICULAR PURPOSES, CONDITION, THE QUANTITY, VALUE OR EXISTENCE OF
RESERVES OF OIL, GAS OR OTHER MINERALS PRODUCIBLE OR RECOVERABLE FROM THE LEASES
OR WELLS, OR OTHERWISE, CONCERNING ANY OF THE PROPERTIES, PERSONALTY OR EXISTING
WELLS. ALL WELLS, PERSONAL PROPERTY, DATA, RECORDS, MACHINERY, EQUIPMENT AND
FACILITIES THEREIN, THEREON AND APPURTENANT THERETO ARE TO BE CONVEYED BY
SELLERS AND ACCEPTED BY BUYER PRECISELY ONLY "AS IS, WHERE IS."
ARTICLE VI
AGREEMENTS AND COVENANTS OF SELLERS
-----------------------------------
SECTION 6.1: Affirmative Covenants
---------------------
During the period from the Effective Time to the Closing Date, Sellers
have:
(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 Sellers, 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
<PAGE>
(e) Reasonably cooperated with the Buyer in endeavoring to obtain
additional title and other information with respect to the Properties,
Personalty or Existing Wells.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
SECTION 7.1: Representations and Warranties of Buyer
---------------------------------------
Buyer represents and warrants to Sellers that:
(a) Buyer is Hunter Resources, Inc.
(b) This Agreement constitutes the valid and binding obligation of Buyer,
enforceable against Buyer in accordance with its terms.
(c) Buyer is acquiring Sellers' and the Subsidiary's interest in the
Personalty, Properties and the Existing Wells as outlined on Exhibits "A" and
"B" 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 Sellers.
(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 and/or its wholly-owned subsidiary,
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 Exhibits "A"
and "B" and satisfied itself as to the current operating condition of the
Properties.
(g) Buyer recognizes that the Bell "A" No. 1 well is physically located
within Sellers yard and such fee simple real property is not a part of this
transaction. Buyer represents to Sellers that after Closing, Buyer or its
affiliates will not store personal property and equipment in Sellers' yard other
than those items specifically attributable to operation of the Bell "A" No. 1
well such as chemicals, surface equipment, etc., provided, however, no tubulars
shall be stored in such yard.
(h) Buyer is qualified to do business in Texas.
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
<PAGE>
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 Sellers each
--------------------------------------------
represent, respectively, and acknowledge that:
1. In the case of Sellers:
(a) Sellers know, or have had the opportunity to acquire, all
information concerning the business, affairs, financial condition
and prospects of Hunter which they deem relevant to make a fully
informed decision regarding the consummation of the transaction
contemplated hereby, and
(b) Sellers have 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 Hunter within the two year period immediately
preceding the date of this Agreement. Without limiting the
foregoing, Sellers understand and acknowledge that neither Hunter
nor anyone acting on its behalf has made any representations or
warranties other than those contained herein regarding Hunter or
the future conduct of Hunter's business or of each subsidiaries
business, and Sellers have 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.
B. STATUS OF SHARES TO BE ISSUED. Buyer and Sellers agree, respectively,
-----------------------------
that each acknowledges and confirms that they have been advised and
understand as follows:
1. They are acquiring the securities (shares of Hunter or
Properties, as the case may be) 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 Hunter
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 Hunter's 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
<PAGE>
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.
C. INDEMNIFICATION BY PARTIES. If at any time in the future Sellers or
---------------------------
Buyer 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. Sellers 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. Buyer will execute an investor
representation letter substantially in the form set out in Exhibit
"D".
E. REGISTRATION RIGHTS OF SELLERS. If Buyer, within two years after
--------------------------------
Closing proposes for any reason to register any 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), it shall
each such time promptly give written notice to Sellers of its
intention so to do. Such notice from Buyer 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
Sellers pursuant to this Agreement, is herein referred to as
"Registrable Shares". Upon the written request from Sellers, 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 Sellers), Buyer 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
Sellers determine in accordance with the terms of the applicable
prospectus.
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
<PAGE>
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:
Sellers: David H. Arrington Oil & Gas, Inc.
214 West Texas, Suite 400
Midland, Texas 79701
Attn: David H. Arrington
President
Buyer: Hunter Resources, 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
Sellers 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 Sellers shall each pay their respective expenses and costs in
connection with this Agreement and the transactions contemplated thereby.
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
--------------
<PAGE>
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 Sellers 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
Sellers until the time of Closing. At Closing, said risk of loss shall pass to
Buyer. Notwithstanding anything to the contrary herein, Sellers 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 Sellers 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 on the Closing Date and thereafter.
SECTION 9.11: Signature in Counterparts
-------------------------
This Agreement may be signed in multiple counterparts by the Buyer and
Sellers, 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:
Each of the parties hereto agree to execute any and all mutually-acceptable
documents so as to vest title to Buyer the interests and the properties outlined
on the attached Exhibit "A", which is attached hereto and incorporated herein.
ARTICLE X
SPECIAL PROVISIONS
------------------
SECTION 10.1: Existing Contracts and Agreements
---------------------------------
Buyer acknowledges Sellers have informed Buyer that portions of the
Properties and Existing Wells covered in this Agreement are subject to the
following contracts and agreements of which Buyer agrees to purchase the
Properties, Personalty and Existing Wells subject to:
(1) Miscellaneous electrical contracts and other agreements;
<PAGE>
(2) A.A.P.L. Model Form Operating Agreement covering the Existing Wells.
SECTION 10.2: Distribution of Monies and Stock Among Sellers:
-----------------------------------------------
Buyer and Sellers agree all monies payable to Sellers shall be paid by wire
transfer according to written instructions received from Sellers or Cashier's
Check in the following amounts and to the following parties as shown below:
William M. Kerr, Jr., qualified intermediary
for the account of David H. Arrington
under Section 1031 of the Internal Revenue
Code of 1986, as amended. $1,213,400.15
516,129 s/s Hunter Resources, Inc. Common Stock 200,000.00
-------------
TOTAL $1,413,400.15
=============
SECTION 10.3: Like Kind Exchange
------------------
Sellers reserve the right to assign all or a portion of their rights under
this Purchase and Sale Agreement at any time prior to the Closing Date to
further the completion in whole or in part of a like kind exchange within the
meaning of Section 1031 of the Internal Revenue Code of 1986, as amended. In the
event Sellers do assign their rights under this Purchase and Sale Agreement
pursuant to the Internal Revenue Code section, Buyer agrees to consent to and
acknowledge Sellers' assignment of their rights in this Agreement in the form as
may be required by Sellers.
"SELLERS"
WITNESS: DAVID H. ARRINGTON
________________________ /s/ David H. Arrington
WITNESS: SHELLEY K. ARRINGTON
________________________ /s/ Shelley K. Arrington
ATTEST: DAVID H. ARRINGTON OIL & GAS, INC.
(Corporate Seal)
________________________ /s/ David H. Arrington
Secretary
"BUYER"
<PAGE>
ATTEST: HUNTER RESOURCES, INC.
________________________ /s/ Gary C. Evans
Secretary ------------------------
Gary C. Evans, President
<PAGE>
"GUARANTOR"
(Section 4.3 (b))
WITNESS: Gary C. Evans
________________________ /s/ Gary C. Evans
STATE OF TEXAS ss.
COUNTY OF MIDLAND ss.
The foregoing instrument was acknowledged before me this the 31st day of
March, 1995, by DAVID H. ARRINGTON.
------------------------------
Notary Public
My Commission Expires:
- --------------------------------
STATE OF TEXAS ss.
COUNTY OF MIDLAND ss.
The foregoing instrument was acknowledged before me this the 31st day of
March, 1995, by SHELLEY K. ARRINGTON.
------------------------------
Notary Public
My Commission Expires:
- ---------------------------------
STATE OF TEXAS ss.
COUNTY OF MIDLAND ss.
The foregoing instrument was acknowledged before me this the 31st day of
March, 1995, by DAVID H. ARRINGTON. as President of DAVID H. ARRINGTON OIL &
GAS, INC., on behalf of the corporation.
------------------------------
Notary Public
My Commission Expires:
- ---------------------------------
<PAGE>
STATE OF TEXAS ss.
COUNTY OF MIDLAND ss.
The foregoing instrument was acknowledged before me this the 31st day of
March, 1995, by GARY C. EVANS, as President of Hunter Resources, Inc., on behalf
of the corporation.
------------------------------
Notary Public
My Commission Expires:
- ----------------------------------
STATE OF TEXAS ss.
COUNTY OF MIDLAND ss.
The foregoing instrument was acknowledged before me this the 31st day of
March, 1995, by GARY C. EVANS.
------------------------------
Notary Public
My Commission Expires:
- ----------------------------------
<PAGE>
EXHIBIT "C"
To That Purchase and Sale Agreement By and Among David H. Arrington,
Shelley K. Arrington and David H. Arrington Oil & Gas, Inc., as Sellers, and
Hunter Resources, Inc., as Buyer, dated this 31st day of March, 1995.
INVESTMENT CERTIFICATE
The undersigned corporation, David H. Arrington Oil & Gas, Inc. and David
H. Arrington (herein collectively referred to as "Arrington"), hereby warrant
and represent to Hunter Resources, Inc. the following:
1. That in acquiring 516,129 shares of voting common stock of Hunter
Resources, Inc., warrant that they are taking such shares for
investment purposes only and fully understand the concept.
2. That Arrington 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 Arrington 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 Arrington 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 31st day of March, 1995.
/s/ David H. Arrington /s/ David H. Arrington
- ---------------------- ---------------------------
David H. Arrington, President David H. Arrington, Individually
David H. Arrington Oil & Gas, Inc.
<PAGE>
EXHIBIT "D"
To That Purchase and Sale Agreement By and Among David H. Arrington,
Shelley K. Arrington and David H. Arrington Oil & Gas, Inc., as Sellers, and
Hunter Resources, Inc., as Buyer, dated this 31st day of March, 1995.
INVESTMENT CERTIFICATE
The undersigned corporation, Hunter Resources, Inc., hereby warrants and
represents to David H. Arrington Oil & Gas, Inc. and David H. Arrington and
Shelley K. Arrington the following:
1. That in acquiring the Properties described in that certain Purchase and
Sale Agreement by and among David H. Arrington, et al, and Hunter Resources,
Inc. dated March 31, 1995, it is acquiring the Properties for investment
purposes only and fully understands the concept.
2. That Hunter Resources, Inc. considers itself an accredited investor as
that term is known in the securities industry and that it does not need nor
require the protection afforded to it by filing of a registration statement with
the United States Securities and Exchange Commission in regard to the
transaction.
3. That Hunter Resources, Inc. is engaged in the business of exploring for
or producing oil, gas and other minerals as an ongoing business and thus
possesses oil and gas expertise or has in its employ qualified geologists,
engineers, professional counsel or industry knowledgeable personnel to
competently evaluate reserves of oil and gas.
DATED this 31st day of March, 1995.
HUNTER RESOURCES, INC.
By: /s/ Gary C. Evans
-------------------------
Gary C. Evans, President
<PAGE>
