<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------------- ---------------
Commission file number 0-9378
ENEX RESOURCES CORPORATION
(Name of small business issuer in its charter)
<TABLE>
Delaware 93-0747806
<S> <C>
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
800 Rockmead Drive
Three Kingwood Place
Kingwood, Texas 77339
(Address of principal executive offices)(Zip Code)
Issuer's telephone number: (281) 358-8401
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.05 par value (Title of class) Check whether the issuer (1)
filed all reports required to be filed by Section 13 or 15(d) of the Exchange
Act during the past 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.[x]
<PAGE> 2
State issuer's revenues for its most recent fiscal year. $11,463,599
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days (See definition of affiliate in Rule 12b-2 of the Exchange Act) $11,254,752
at March 23, 1998.
Applicable Only to Corporate Registrants
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: At March 23, 1998 - 1,342,672
Documents Incorporated by Reference:
NONE
<PAGE> 3
TABLE OF CONTENTS
FORM 10-KSB ANNUAL REPORT
FOR THE YEAR ENDED DECEMBER 31, 1997
ENEX RESOURCES CORPORATION
<TABLE>
<CAPTION>
Item No. Part I Page
- -------- -------- ------
<S> <C> <C>
1 Description of Business I-1
2 Description of Property I-3
3 Legal Proceedings I-8
4 Submission of Matters to a Vote of Security Holders I-8
Part II
5 Market for Common Equity and
Related Stockholder Matters II-1
6 Management's Discussion and Analysis
or Plan of Operation II-2
7 Financial Statements and Supplementary Data II-8
8 Changes In and Disagreements With Accountants
on Accounting and Financial Disclosure II-28
Part III
9 Directors, Executive Officers, Promoters and
Control Persons; Compliance with Section 16(a)
of the Exchange Act III-1
10 Executive Compensation III-4
11 Security Ownership of Certain
Beneficial Owners and Management III-6
12 Certain Relationships and Related Transactions III-7
13 Exhibits and Reports on Form 8-K III-7
Signatures S-1
</TABLE>
<PAGE> 4
PART I
Item 1. Description of Business
General
Enex Resources Corporation ("Enex" or the "Company") was incorporated on
August 17, 1979 in Colorado. On June 30, 1992, the Company reincorporated in
Delaware. The Company is engaged in the business of acquiring interests in
producing oil and gas properties and managing oil and gas income limited
partnerships. The Company's operations are concentrated in a single industry
segment.
The Company's principal executive offices are maintained at 800 Rockmead
Drive, Three Kingwood Place, Kingwood, Texas 77339. The telephone number at
these offices is (281) 358-8401. The Company has no regional offices.
As of March 1, 1998, the Company and one of its subsidiaries, Enex
Securities Corporation, employed 18 persons. All employees are engaged on a
full-time basis.
Since 1982, the Company has financed most of its oil and gas activities
through the public sale of interests in limited partnerships formed to purchase
and hold working interests and other operating and non operating interests in
producing oil and gas properties (the "Partnerships"). Until 1986, most of the
Company's ownership of proved reserves was derived through the purchase of
producing properties by the Partnerships. Effective June 30, 1997, thirty-four
of the limited partnerships ("Predecessor Partnerships") were consolidated to
form the Enex Consolidated Partners, L.P. (the "Consolidated Partnership"). The
Company acts as general partner in, and contributed capital to Enex Consolidated
Partners, L.P. As general partner, the Company has a 4.1% interest in the net
revenues and gains generated by properties owned by Enex Consolidated Partners,
L.P. As general partner, the Company is obligated to periodically offer to
repurchase the interests of those limited partners electing to present their
interests to the Company.
Prior to 1995, 56 Partnerships commenced operations with aggregate investor
subscriptions of $223.5 million received from 69,139 investors, including
reinvestors. Producing property acquisitions for those Partnerships totaled
approximately $200.7 million.
During 1995, four partnerships, with aggregate investor subscriptions
totaling $33.0 million, were liquidated. During 1996, two additional
partnerships, with aggregate investor subscriptions totaling $11.8 million, were
liquidated. And during 1997 five additional partnerships were liquidated with
investor subscriptions totaling $9.3 million. Effective June 30, 1997, the
remaining thirty-four partnerships were consolidated into Enex Consolidated
Partners, L.P. The Company's receivables from the Predecessor Partnerships and
its general partner capital balances in the Predecessor Partnerships were
converted into limited partner unit interests in the Consolidated Partnership.
These interests, combined with the Company's limited partner interests in the
Predecessor Partnerships gave the Company a 55.5% limited partner interest in
the new Consolidated Partnership, together with a 4.1% carried revenue interest
as the General Partner of the Consolidated Partnership.
I-1
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Approximately 73% of the Company's estimated future net revenues from
proved reserves at December 31, 1997 is attributable to its interests in the
Consolidated Partnership and approximately 27% is attributable to the properties
owned directly by the Company after deducting the minority interest share of the
Consolidated Partnership.
In acquiring properties for its own account, the Company is required to
avoid conflicts of interest with the Partnerships for which it acts as general
partner. Such requirements may restrict the Company's operations for its own
account. The Company is also contingently liable for partnership obligations.
Due to the consolidation of the thirty-four Predecessor Partnerships, which
resulted in the Company obtaining a 55.5% limited partner interest in the
Consolidated Partnership, the results of operations and financial condition of
the Consolidated Partnership are reflected in the accompanying financial
statements on a fully consolidated basis with the Company subsequent to June 30,
1997.
Competition
The business of exploring for, developing and producing oil and gas is
intensely competitive. The Company competes with companies which have greater
financial resources, larger staffs and labor forces, more equipment for
exploration and longer operating experience than the Company. The oil and gas
industry is dominated by a number of companies with greater assets and resources
than the Company.
Marketing and Prices
The marketing and prices of oil and gas found and produced by the Company
are affected by a number of factors which are beyond the Company's control, the
exact nature of which cannot be accurately predicted. These factors include the
quantity and price of crude oil imports, fluctuating supply and demand, the
availability of adequate pipeline and other transportation facilities, the
marketing of competitive fuels, state and federal regulation of oil and gas
production, and distribution and other matters affecting the availability of a
ready market. All of these factors are extremely volatile. In addition, in
recent years there have been surpluses in crude oil and natural gas supplies
which have caused a decline in oil and gas prices.
Environmental and Conservation Regulation
State regulatory authorities in the states in which the Company owns
producing properties are empowered to make and enforce regulations to prevent
waste of oil and gas and to protect correlative rights and opportunities to
produce oil and gas between owners of a common reservoir. Each of such
regulatory authorities also regulates the amount of oil and gas produced by
assigning allowable rates of production, which may be increased or decreased in
accordance with supply and demand. Requirements regarding the prevention and
clean-up of pollution and similar environmental matters are also generally
applicable.
The existence of such regulations has had no material adverse effect on the
Company's operations to date, and the cost of compliance has not yet been
material. There are no material administrative or judicial proceedings arising
under such laws or regulations pending against the Company. The Company
I-2
<PAGE> 6
is unable to assess or predict the impact that compliance with environmental and
pollution control laws and regulations may have on its future operation, capital
expenditures, earnings or competitive position.
Recent Tax Laws
The operations of the Company are affected by federal income tax laws,
particularly those provisions of the Internal Revenue Code of 1986, as amended,
which provide certain tax benefits to owners of economic interests in oil and
gas properties. In general, the major sources of federal income tax deduction
available to the Company are the deductions for the greater of cost depletion or
percentage depletion, if available, depreciation of tangible lease and well
equipment and the deduction for intangible drilling and development costs.
The Company is subject to regular income tax at graduated rates up to a
maximum 34% rate. Additionally, the Company may also be subject to the corporate
alternative minimum tax which is imposed at a rate of 20%. Tax preference items
which may cause the Company to incur the alternative minimum tax include the
following:
* excess of accelerated depreciation over depreciation using the
alternative minimum tax lives and method
* the limitation on the deduction of net operating losses to 90% of
the Company's alternative minimum taxable income (with the disallowed
portion of the net operating loss carried over to other years)
* 75% of the excess of the Company's adjusted current earnings over
its alternative minimum taxable income (determined without regard to
such adjustment and prior to reduction by operating losses.)
Item 2. Description of Property
Oil and Gas Properties
Until 1986, the Company had acquired most of its interests in producing oil
and gas properties through purchases made by the Partnerships. Prior to 1995,
the Partnerships acquired approximately $200.7 million of producing oil and gas
properties. Effective June 30, 1997, thirty-four limited partnerships
consolidated to form Enex Consolidated Partners, L.P. in which the Company, as
general partner, owns a 4.1% interest in net revenues and gains generated by
properties owned by the Consolidated Partnership in addition to a 55.5% limited
partner interest.
In addition to Partnership activities, the Company owns interests in 220
oil and gas productive properties for its own account, and is the operator of 98
properties. The total properties for its own account and the Consolidated
Partnership include interests in more than 11,000 producing wells in 15 states.
The producing oil and gas properties in which the Company owns interests
are all located within the United States. The Company's interests in these
properties (including properties in which the Company's interest is derived
through the Consolidated Partnership for which it acts as general partner*) at
December 31, 1997 are summarized below:
I-3
<PAGE> 7
As general partner, the Company has a 4.1% interest in the net revenues and
gains generated by the Partnerships' properties in addition to its 55.5% limited
partner interest in the Consolidated Partnership. Unless otherwise indicated,
quantitative information contained in this report regarding the Company's oil
and gas properties, the production therefrom and related data includes the
Company's indirect interest in the properties owned by the Partnership.
<TABLE>
<CAPTION>
Developed Acres Undeveloped Acres
Gross Net Gross Net
<S> <C> <C> <C> <C>
Working Interests 350,685 15,028 6,329 3,607
Royalty Interests 553,988 2,594 11,949 2,423
</TABLE>
"Developed acres" are acres spaced or assigned to productive wells.
"Undeveloped acres" are those leased acres on which wells have not been
drilled or completed to a point that permits the production of commercial
quantities of oil and gas, regardless of whether such acreage contains proved
reserves.
A "gross acre" is an acre in which an interest is owned. The number of
gross acres is the total number of acres in which such interest is owned.
A "net working interest acre" is deemed to exist when the sum of fractional
working interests owned in gross acres equals one. The number of net working
interest acres is the sum of fractional working interests owned in gross acres
expressed as a whole number.
A "net royalty acre" is deemed to exist when the sum of fractional royalty
interests owned in gross acres equals one. The number of net royalty acres is
the sum of fractional royalty interests owned in gross acres expressed as a
whole number.
I-4
<PAGE> 8
Property Acquisitions
The following acquisitions were made by the Company during 1995:
East Seven Sisters acquisition. Royalty interests in the Gorman Gas Unit in
Duval County, Texas were purchased from four managed limited partnerships
effective December 1, 1995 for $660,290.
Blair acquisition. Working interests in nine wells located in WWW Field,
Ward County, Texas were purchased from two managed limited partnerships
effective December 1, 1995 for $18,450. This acquisition was sold in 1996.
Comite acquisition. Overriding royalty interests in four gas wells located
in East Baton Rouge Parish, Louisiana, were purchased from four managed
limited partnerships for $89,880 effective December 1, 1995. This
acquisition was sold in 1996.
No acquisitions were made by the Company during 1996.
The following acquisitions were made by the Company during 1997.
Corinne acquisition. Royalty and mineral interest in 16 wells in Corinne
Field, Monroe County, Mississippi, were purchased from one managed limited
partnership for $78,750, effective December 1, 1997.
Byrum B acquisition. An overriding royalty interest in the Byrum 1-28 well
located in Ononadago Field, Ingham County, Michigan was purchased for
$15,000 from one of the managed limited partnerships, effective December 1,
1997.
Brighton acquisition. Working interests in 2 oil wells located in Brighton
Field, Livingston County, Michigan were purchased for $23,520 from one of
the managed limited partnerships.
Elmac acquisition. A working interest in 3 wells in Otsego County, Michigan
was purchased from three managed limited partnerships for $67,314,
effective December 1, 1997.
Speary acquisition. A working interest in 7 wells located in Karnes County,
Texas were purchased from one of the managed limited partnerships for
$55,000, effective December 1, 1997.
I-5
<PAGE> 9
Net Oil and Gas Production
The following table shows for the years ended December 31, 1997, 1996 and
1995, the approximate production attributable to the Company's oil and gas
interests including interests derived through the Company's interests in the
Partnerships. The figures in the table represent "net production"; i.e.,
production owned by the Company or the Partnerships and produced to the
Company's interest after deducting royalty and other similar interests. All
production occurred in the United States.
<TABLE>
<CAPTION>
1997 1996 1995
--------- ---------- ----------
(3)
<S> <C> <C> <C>
Crude oil and condensate (Bbls) 277,229 177,793 200,778
Natural gas - leasehold or royalty (Mcf) 1,735,704 1,649,530 1,671,517
Natural gas liquids (Bbls) (1) 33,019 34,316 35,388
Natural gas - gas plant sales (Mcf) (1) 220,193 232,778 230,899
</TABLE>
The following table sets forth the Company's average sales price per barrel
of oil, per Mcf of gas, per barrel of natural gas liquids ("NGL"), per Mcf of
gas plant gas sales and average production cost per unit produced for the years
ended December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Average sales price per Bbl of crude oil and
condensate $ 17.20 $ 19.42 $ 15.82
Average sales price per Mcf of natural gas 2.49 2.32 1.64
Average production cost per equivalent barrel of
production 6.93 6.19 5.49
Average sales price per Bbl of NGL (1) 12.16 13.34 9.07
Average sales price per Mcf of gas plant gas (1) 2.73 1.96 1.51
Average production cost per equivalent Bbl of
NGL production (1)(2) 11.35 9.10 6.89
</TABLE>
(1) Natural gas liquids production and gas plant gas sales were obtained
through gas processing plant ownership rather than through leasehold
ownership.
(2) Includes cost of gas purchased at plants for processing.
(3) The 1997 results includes the recognition of minority interest in Enex
Consolidated Partners, L.P. on a fully consolidated basis after June 30,
1997.
I-6
<PAGE> 10
The following table shows, as of December 31, 1997, the approximate number
of gross and net producing oil and gas wells in which the Company own interests,
including wells in which the Company's interest is derived through its interests
in the Consolidated Partnership:
<TABLE>
<CAPTION>
Productive Oil Wells Productive Gas Wells
Net Working Net Net Working Net
Gross Interest Royalty Gross Interest Royalty
Wells Wells Wells Wells Wells Wells
<S> <C> <C> <C> <C> <C>
11,145 80.180 4.723 1,147 53.657 15.573
</TABLE>
"Productive wells" are producing wells and wells capable of production,
including shut-in wells.
A "gross well" is a well in which an interest is held. The number of gross
wells is the total number of wells in which an interest is owned.
A "net working interest (`W.I.') well" is deemed to exist when the sum of
fractional interests owned in gross W.I. wells equals one. The number of net
W.I. wells is the sum of the fractional interests owned in gross W.I. wells,
expressed as whole numbers and fractions thereof.
A "net royalty well" is deemed to exist when the sum of fractional
interests owned in gross royalty wells equals one. The number of net royalty
wells is the sum of the fractional interests owned in gross royalty wells,
expressed as whole numbers and fractions thereof.
Oil and Gas Reserves
Proved oil and gas reserves reported herein for the Company are based
primarily on engineering studies performed by the Company's engineering staff.
Proved oil and gas reserves reported herein for the Partnerships and for the
Company's share of such Partnership reserves are based primarily on engineering
studies performed by the petroleum engineering consulting firm of H. J. Gruy and
Associates, Inc. The reserves included in this report are estimates only and
should not be construed as exact quantities. Future conditions may affect
recovery of estimated reserves and revenues, and all reserves may be subject to
revision as more performance data becomes available. The proved reserves used in
this report conform to the applicable definitions promulgated by the Securities
and Exchange Commission. No major discovery or other favorable or adverse event
that is believed to have caused a significant change in the estimated proved
reserves has occurred since December 31, 1997.
Drilling Activities
In 1997, the Company did not participate in any significant developmental
drilling for its own account or as an operator of Partnership properties.
In 1996, the Company and its affiliated Limited Partnerships participated
in the drilling of twelve oil wells and six gas wells, all of which were
successful. The Company owns a direct interest in two of the oil wells drilled
at SW Muldoon field, Fayette County, Texas and North Buck Draw field, Campbell
County, Wyoming. In conjunction with the partnerships, three gas wells and one
oil well were drilled at Sibley field, Webster Parish, Louisiana. Two oil wells
were drilled in Oklahoma and the remainder of the wells drilled were located in
various fields in Texas.
In 1995, the Company did not participate in any significant developmental
drilling for its own account or as an operator of Partnership properties.
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Current Activities
The Company is continuing to acquire interests in producing oil and gas
properties and to operate properties both for its own account and for its
managed limited partnerships. In February 1998, the Company received a tender
offer from Middle Bay Oil Company, Inc. ("MBOC") for all of the Company's
outstanding shares at $15 cash, per share. This tender offer expired on March
20, 1998 and was accepted by approximately 79% of the common shareholders. As
such, the control of the company will be assumed by MBOC at the closing of the
tender offer on March 27, 1998.
Offices
The Company's corporate headquarters are at 800 Rockmead Drive, Three
Kingwood Place, Kingwood, Texas, where it leases 10,219 square feet of office
space for itself and on behalf of Enex Securities Corporation.
Item 3. Legal Proceedings
The Company and one of its managed limited predecessor partnerships in
which the Company owned general and limited partnership interests, were named as
parties to a lawsuit filed by Texas Crude, Inc. ("Texas Crude"). Texas Crude
sought to recover legal and other fees totaling $600,000. In August 1993, a
judgement was granted in favor of Texas Crude for $414,203, plus interest by the
101st Judicial District Court of Texas. The Company appealed the verdict and
filed a counterclaim for funds that were wrongfully withheld by Texas Crude. In
December 1994, the Fifth District Court of Appeals reversed the judgement of the
trial court and rendered judgement in favor of the Company and the Partnership.
Accordingly, a receivable was established. In 1997, the Company recognized
$58,810 of interest from the outstanding judgement which totaled $338,860 at
December 31, 1997.
There are no other material pending legal proceedings to which the Company
or any of its subsidiaries are a party or to which any of their properties are
subject.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
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<PAGE> 12
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
The principal market where the Company's common stock is traded is the
National Market System of the National Association of Securities Dealers, Inc.
Automated Quotation System ("NASDAQ").Price Range of Common Stock
The following table shows the range of closing prices for the common stock
in the over-the-counter market for each quarter during the Company's past two
fiscal years, as reported by the NASDAQ National Market System. The quotations
represent prices in the over-the-counter market between dealers in securities
and do not include retail markup, markdown or commissions and do not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
1997 1996
---- ----
Period High Low High Low
------ ---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter . . . . . . . . 10 3/4 9 1/4 8 3/4 7 3/4
Second Quarter . . . . . . . 10 3/4 8 1/2 11 1/4 8
Third Quarter . . . . . . . . 12 7/8 9 1/2 10 8 1/4
Fourth Quarter . . . . . . . 13 1/4 10 1/4 10 1/2 8 1/8
</TABLE>
Number of Equity Security Holders
Number of Record Holders
(as of March 1, 1998)
Title of Class
Common Stock ($.05 par value) 863*
(*) Includes "nominee" or "street" name holders of record.
Dividends
The Company paid semi-annual dividends in December and June of 1997 of $.15
per common share. In December 1997, the Company also paid an additional special
dividend of $.10 per common share. As a result, the Company paid dividends
totaling $.40 per common share in 1997. During 1996 and 1995, the Company paid
dividends of $.25 and $.20 per common share, respectively. Although the Company
has consistently paid dividends to its common shareholders, the payment of
future dividends is uncertain due to the acquisition of the Company by Middle
Bay Oil Company.
<PAGE> 13
Item 6. Managements Discussion and Analysis or Plan of Operation
Selected Financial Data
(Dollar amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Selected Statement of Operations Data 1997 1996 1995 1994 1993
-------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Total revenues .......................... $ 11,464 $ 8,597 $ 7,950 $ 6,871 $ 6,247
Earnings (loss) before income taxes ..... $ 1,982 $ (2,415) $ 870 $ 630 $ 968
Net income (loss) ....................... $ 1,966 $ (2,322) $ 1,269 $ 1,051 $ 932
Net income (loss) per basic share ....... $ 1.45 $ (1.70) $ 0.96 $ 0.82 $ 0.75
Net income (loss) per diluted share ..... $ 1.45 $ (1.70) $ 0.96 $ 0.70 $ 0.64
Cash dividend declared per common share . $ 0.40 $ 0.25 $ 0.20 $ 0.20 $ 0.19
Selected Balance Sheet Data
Total assets ............................ $ 20,002 $ 15,075 $ 18,827 $ 19,236 $ 15,177
Long-term debt, excluding current
maturities ........................... $ -- $ -- $ -- $ 974 $ 259
Stockholders' equity .................... $ 13,428 $ 12,763 $ 15,462 $ 14,214 $ 13,259
Stockholders' equity per share .......... $ 10.04 $ 9.40 $ 11.69 $ 11.02 $ 10.06
Statistical:
Cumulative number of limited
partnerships formed ................ 57 57 57 57 56
Cumulative amount of limited
partnership capital raised ......... $223,500 $ 223,500 $223,500 $223,500 $222,489
Proved reserves at December 31:
Barrels of oil (000's) ............. 1,300 812 907 1,089 633
Bcf of gas ......................... 14.92 12.98 11.57 12.45 10.56
Standardized measure of discounted
future net cash flows of proved oil
and gas reserves at December 31 .... $ 20,180 $ 24,103 $ 15,179 $ 13,448 $ 10,718
</TABLE>
II-2
<PAGE> 14
In 1997, Enex Resources Corporation ("Enex" or the "Company") recognized an
increase in revenues and cash flows mainly due to increased interest in Enex
Consolidated Partners L.P. Net gains from the sales of properties together with
relatively lower operating expenses allowed Enex to increase net income by 24%
from 1996, absent a $3.9 million impairment in 1996. Effective June 30, 1997,
thirty-four of the Company's managed limited partnerships (the "Predecessor
Partnerships") were consolidated to form Enex Consolidated Partners, L.P. (the
"Consolidated Partnership"). In conjunction with the Consolidation, the Company
converted its receivables from the limited partnerships and its capital
interests in the Predecessor Partnerships into limited partner units in the
Consolidated Partnership. As a result, Enex owns a 55.5% limited partnership
interest in the Consolidated Partnership. As such, the results of operations and
financial condition subsequent to June 30, 1997 have been fully consolidated in
the attached financial statements and minority interest recognized. At December
31, 1997, Enex had a current ratio of 7.37 with no long-term debt.
Liquidity and Capital Resources
Operating activities provided cash flow of $2,519,016 in 1997 as compared
to $3,020,581 in 1996 and $2,541,845 in 1995. The lower cash flow in 1997 as
compared to 1996 was primarily the result of an $860,422 decrease in accounts
receivable in 1996 as compared to a similar decrease of $180,213 in 1995. The
higher cash flows in 1996 as compared to 1995 were primarily the result of
higher revenues.
In 1997, the Company had no long term debt. In May 1996, the Company fully
repaid its long-term debt with repayments of $850,000 in the first five months
of 1996. The Company repaid a net of $1,074,000 of its long-term debt in 1995.
In 1997, proceeds from the sales of property added $1,639,855 to the
Company's cash flow. In 1996 and 1995, proceeds from the sale of property added
$555,557 and $991,632, respectively. Receipts collected on notes receivable from
managed limited partnerships added $16,902 and $49,816 in 1996 and 1995,
respectively.
A significant portion of Enex's cash flow has continued to be reinvested in
oil and gas properties. A total of $758,585, $1,333,111 and $1,927,925 was used
for the acquisition and development of oil and gas properties during 1997, 1996
and 1995, respectively. In 1997, $466,188 was used for the acquisition of oil
and gas properties through the purchase of additional interests in the
partnership. In 1997, the Company purchased royalty interests in 16 wells in
Corinne Field, Monroe County, Mississippi for $78,750, an overriding royalty
interest for $15,000 in the Byrum 1-28 well in Ononadago Field, Ingham County,
Michigan and working interests in 2 wells in Brighton Field, Livingston County,
Michigan for $23,520, 3 wells in Otsego County, Michigan for $67,314, and 7
wells in Karnes County, Texas for $55,000, all from managed limited
partnerships. In 1996, Enex drilled eighteen developmental oil and gas wells,
including, wells in the Sibley Field, Webster Parish, Louisiana, which added
750,000 MCF of gas equivalent to reserves. In 1995, Enex acquired royalty
interests in the Gorman gas unit in Duval County, Texas, overriding royalty
interests in four gas wells located in East Baton Rouge Parish, Louisiana and
working interests in nine wells located in WWW Field, Ward County, Texas from
managed limited partnerships for $660,290, $89,880 and $18,450, respectively.
Enex increased its semi-annual dividend to its shareholders in December
1997 from $.15 per share to $.25 per share with the payment of a $.10 per share
special dividend. The Company utilized $530,652 of cash flow to pay $.40 per
share of dividends in 1997. In 1996 and 1995, the Company utilized $345,542 and
$268,200, respectively, to pay dividends of $.25 and $.20 per share,
respectively.
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<PAGE> 15
In 1997, the Company continued its stock repurchase program, utilizing
$1,375,637 to purchase 131,500 shares of its common stock. In 1996, the Company
utilized $333,250 to purchase 34,494 shares of its common stock.
As a result of the higher net income in 1997 and the recognition of
minority interest in the Consolidated Partnership, working capital increased to
$5,595,347 at December 31, 1997, from $3,969,402 at December 31, 1996. At
December 31, 1997, the Company's current ratio was 7.37 and it had no long-term
debt.
Results of Operations
In 1997, the Company recorded net income of $1,965,675 or $1.45 per share.
This compares to a loss of $2,321,521 or $1.70 per share in 1996, and net income
of $1,269,400 or $.96 in 1995. The loss in 1996 was a result of a $3,908,370
non-recurring impairment of property. Absent this impairment, the Company earned
$1,586,849 in 1996. The increase in net income from 1996 to 1997 was primarily
the result of increased revenues resulting form the conversion of receivable and
capital balances into limited partnership interest in the Consolidated
Partnership, coupled with relatively lower operating costs. Revenues and
expenses shown in the accompanying financial statements record the Company and
Enex Consolidated Partners, L.P. on a fully Consolidated basis subsequent to
June 30, 1997.
Oil, natural gas and gas plant sales were $10,095,642 in 1997, $8,202,331
in 1996 and $6,594,438 in 1995. Sales increased by $1,893,311 or 23% in 1997
from 1996. Oil sales increased by $1,316,289 or 38% in 1997 from 1996. A 56%
increase in oil production increased oil sales by $1,931,047. This increase was
partially offset by a 12% decrease the average oil sales price. Gas sales
increased by $490,289 or 13%. A 5% increase in gas production increased sales by
$199,924. A 7% increase in the average gas sales price increased gas sales an
additional $290,365. Gas plant sales increased by $86,733 or 9%. A 15% increase
in the average sales price of gas plant products increased sales by $128,976.
This increase was partially offset by a 5% decrease in the production of gas
plant products. The increases in oil and gas production were primarily the
result of the recognition of the Consolidated Partnership on a fully
Consolidated basis after June 30, 1997. The decrease in gas plant production was
primarily due to natural production decline. The decrease in average oil sales
prices corresponds with lower prices in the overall market for the sale of oil.
The increases in the average gas and gas plant products sales prices correspond
with higher prices in the overall markets for the sale of gas and gas plant
products.
Oil, natural gas and gas plant gas sales increased by $1,607,893 or 24%
from 1995 to 1996. Oil sales increased $277,366 or 9% in 1996 from 1995. A 23%
increase in the average oil sales price increased oil sales by $640,966. This
increase was partially offset by an 11% decrease in oil production. Gas sales
increased by $1,084,708 or 39% in 1996 from 1995. A 41% increase in the average
gas sales price increased sales by $1,120,862. This increase was partially
offset by a 1% decrease in gas production. Gas plant sales increased by 37% or
$245,819. A 38% increase in the average sales price of gas plant products
increased sales by $252,701. This increase was partially offset by a 1% decrease
in the production of gas plant products. The decreases in production were
primarily the result of natural production declines, partially offset by the
development of eighteen oil and gas wells in 1996. The increases in average
sales prices corresponded with higher prices in the overall market for the sale
of oil, gas and gas plant products.
Other revenues were a net $226,658 in 1997 as compared with $88,259 in 1996
and $687,401 in 1995. Such revenues included rig rental revenues of $83,239,
$153,346 and $106,144 in 1997, 1996 and 1995, respectively. Also included in the
1997 amount were $50,000 for the sale of a drilling rig, and
II-4
<PAGE> 16
$20,000 from a lawsuit settlement on the Dover Hennessey gas plant. Also
included in 1996 and 1995 amounts were a net loss of $125,015 on the liquidation
of managed partnerships and a $393,980 gain recognized from the early receipt of
notes receivable in 1996 and 1995, respectively. The increase in other revenues
in 1997 was primarily the result of the sale of the drilling rig. The decrease
in other revenues in 1996 from 1995 was primarily due to the loss arising from
the liquidation of managed limited partnerships in 1996 and the $393,390 gain
recognized in 1995 on the collection of notes receivable. The receipt of
unrecognized noted receivable was accelerated in 1995 as a result of the
liquidation of four managed limited partnerships.
General and administrative expenses increased to $2,061,090 in 1997 from
$1,826,762 in 1996. In 1995, such expenses were $1,689,742. This represents an
increase of $234,328 from 1996 to 1997. This increase was primarily the result
of the recognition of minority interest in the Consolidated Partnership. The
increase of $137,020 from 1995 to 1996 was primarily the result of the
additional interests acquired in managed limited partnerships in 1996.
Lease operating expenses were $3,455,717 in 1997 as compared to $2,490,701
in 1996 and $2,322,509 in 1995. Lease operating expenses increased by $965,016
or 39% from 1996 to 1997. The increase was primarily a result of the increased
production, as noted above, resulting from the recognition of minority interest
in the Consolidated Partnership. The increase of $168,192 or 7% from 1995 to
1996 was primarily the result of the increased production noted above.
Depletion, depreciation and amortization expense ("DD&A") was $1,633,771 in
1997, $1,338,602 in 1996 and $1,909,857 in 1995. DD&A increased by $295,169 or
22% from 1996 to 1997. The changes in production, noted above, increased DD&A by
$281,530. A 1% increase in the depletion rate increased DD&A by an additional
$13,639. The increase in the DD&A rate in 1997 was primarily the result of a
downward revision of the gas reserves during December 1997, partially offset by
an upward revision of the oil reserves. DD&A decreased by $571,255 or 30% from
1995 to 1996. A 26% decrease in the depletion rate reduced DD&A by $476,636. The
changes in production, noted above reduced DD&A by an additional $94,619. The
decrease in the depletion rate was primarily the result of the recognition of a
nonrecurring impairment of $3,908,370 in the first quarter of 1996, coupled with
upward revisions of the oil and gas reserves during December 1996.
In 1997, the Company earned $217,645 of net interest income as compared to
$35,039 in 1996. The company incurred $117,062 of net interest expense in 1995.
Net interest income increased in 1997 from 1996 due to the return on investment
of excess cash during 1997. The higher interest expense in 1995 was due to the
outstanding debt during 1995.
The Company recognized deferred income tax expense of $16,082 in 1997. This
compares to the recognition of deferred income tax credits of $92,981 and
$399,658 in 1996 and 1995, respectively. The income tax expense represents the
utilization of the Company's deferred tax asset in 1997. The income tax credits
represent the recognition of a portion of the Company's deferred tax asset that
is expected to be realized in future years. At December 31, 1997, the Company
had a substantial deferred tax asset of $6,105,148. Due to uncertainties
inherent in the oil and gas market, a valuation allowance reserved all but
$725,328 of the asset.
II-5
<PAGE> 17
Future Outlook
The Company does not anticipate that it will incur any significant
expenditure to address Year 2000 issues, nor do Year 2000 issues represent a
known material event or uncertainty to the Company. To the extent that the
Company may be adversely affected by the Year 2000 issues of its suppliers,
customers and other entities, the Company does not believe that it will be more
adversely affected than other companies in its industry with similar operations.
In 1997, Enex generated higher revenues and cash flows as result of
obtaining a greater interest in the Consolidated Partnership. This allowed Enex
to increase its cash position and working capital. During 1997, five
partnerships were liquidated and the remaining thirty-four managed limited
partnerships were combined to form one partnership, Enex Consolidated Partners
L.P. This restructuring will allow a revamping of administrative processes,
yielding further reductions in general and administrative expenses.
In February 1998, Middle Bay Oil Company, Inc. ("Middle Bay"), an
independent oil and gas producer, issued a tender offer to purchase all of the
Company's outstanding common stock at $15 cash per share. The tender offer
expired on March 20, 1998, with approximately 79% of the outstanding shares of
common stock of the Company tendered to Middle Bay. The aggregate amount to be
paid by Middle Bay will be $15,724,230 in cash, plus payments to holders of
options to purchase 143,000 shares of Enex stock. As a result, Enex will become
a subsidiary of Middle Bay upon the closing of the tender which is expected to
be March 27, 1998.
On March 17, 1998, the Enex Board of Directors took the following steps in
order to facilitate Middle Bay's tender offer:
(1) Added three (3) Middle Bay nominees to the Enex Board of Directors
to facilitate the transfer of control of Enex to Middle Bay. The three
new directors, whose appointment increased total board membership from
six to nine members, are Middle Bay's President, John J. Bassett, its
Vice President for Corporate Development, Stephen W. Herod, and one of
its non-employee directors, Gary R. Christopher. Messrs. Bassett,
Herod, and Christopher will hold office until the next annual meeting
of Enex stockholders and until their successors are elected and
qualified.
(2) Approved the acquisition of the tendered shares of Enex common
stock by Middle Bay pursuant to Section 203 of the Delaware General
Corporation Law; and
(3) Amended the Rights Agreement between Enex and its transfer agent,
American Stock Transfer, Incorporated, dated September 4, 1990, as
amended through April 12, 1994, to make the stock purchase rights
created by the agreement inapplicable to transactions which are
approved by Enex's Board of Directors and to increase the rights
exercise price to $33.00 to reinstate the approximate ratio between
the exercise price and the market price of Enex common stock, prior to
Middle Bay's tender offer, to that which was in effect (approximately
3 to 1) when the rights were created.
In addition, Gerald B. Eckley and the five other Enex directors elected by
Enex's stockholders, Robert D. Carl, III, William C. Hooper, Jr., Martin J.
Freedman, James T. Shorney, and Stuart Strasner (collectively, the "Incumbent
Enex Directors") have tendered their resignations, effective upon the successful
completion of the tender offer. As soon as possible, but not sooner than the
tenth day after this Information Statement is mailed to all of the stockholders
of Enex, Messrs. Bassett, Herod, and Christopher are expected to appoint four
(4) additional individuals to fill the vacancies caused by those resignations.
II-6
<PAGE> 18
According to information provided to Enex by Middle Bay, the source of the
consideration to be paid for the shares of the tendering Enex stockholders is
available cash and working capital and a drawdown of approximately $15,000,000
under Middle Bay's revolving credit facility with the Bank of Oklahoma, N.A. The
loan requires Middle Bay to cause Enex, a subsidiary of Middle Bay, to become a
party to and pledge certain of its assets as collateral under the credit
facility. The loan agreement provides for a $50,000,000 convertible revolving
line of credit pursuant to which the Bank, with other participating banks, shall
extend from time to time loans to Middle Bay and its subsidiaries for
Bank-approved purposes to the extent of Middle Bay's available "collateral
borrowing base" as provided in the loan agreement. The collateral borrowing base
is determined from time to time by the Bank based on evaluations of the oil and
gas reserves attributable to Middle Bay's and its subsidiaries' interests in
proven producing oil and gas properties. The extension of credit by the Bank to
Middle Bay for the purpose of acquiring Enex shares was approved in light of the
Bank's evaluation of Enex's proven producing reserves and their contribution to
Middle Bay's bank borrowing base.
The loans extended under the credit facility may convert to a 72 month term
loan on or after March 31, 1998, payable in equal monthly payments of principal
plus interest at variable rates at either bank prime or 1.75 - 2.00 points above
the London Interbank Offered Rates quoted from time to time at the election of
Middle Bay.
Reference is made to Middle Bay's Offer to Purchase dated February 19, 1998
(the "Offer to Purchase") and the related Letter of Transmittal, which was
provided to all Enex stockholders in February for additional information
concerning Middle Bay, an oil and gas company engaged in the exploration for oil
and gas in the United States, its tender offer, the letter of intent entered
into between Enex and Middle Bay on January 29, 1998, and the "Board Action
Condition" the steps taken by the Enex Board of Directors on March 17, 1998 was
intended to satisfy.
The forward-looking statements contained herein are based on various
assumptions, many of which are based, in turn, upon further assumptions. The
Company's expectations, beliefs and projections are expressed in good faith and
are believed by the Company to have a reasonable basis, including without
limitation, management's examination of historical operating trends, data
contained in the Company's records and other data available from third parties,
but there can be no assurance that management's expectations, beliefs or
projections will result or be achieved or accomplished.
II-7
<PAGE> 19
Item 7. Financial Statements and Supplementary Data
INDEPENDENT AUDITORS' REPORT
Enex Resources Corporation:
We have audited the accompanying consolidated balance sheets of Enex
Resources Corporation and its subsidiaries as of December 31, 1997 and
1996, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the three years in the
period ended December 31, 1997. These financial statements are the
responsibility of Enex Resources Corporation's management. Our
responsibility is to express an opinion on the financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Enex Resources
Corporation and subsidiaries at December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the three
years in the period ended December 31, 1997 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Houston, Texas
March 25, 1998
II-8
<PAGE> 20
ENEX RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS, DECEMBER 31, 1997 AND 1996
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1997 1996
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and certificates of deposit .............. $ 4,244,470 $ 1,862,281
Accounts receivable:
Managed limited partnerships ................ -- 522,283
Oil and gas sales ........................... 1,587,400 1,242,923
Joint owner ................................. 144,038 178,291
Prepaid expenses and other current assets ..... 364,382 806,443
Deferred tax asset ............................ 133,703 105,464
----------- -----------
Total current assets ............................ 6,473,993 4,717,685
----------- -----------
PROPERTY:
Oil and gas properties (successful efforts
accounting method) Proved mineral interests
and related equipment and facilities:
Direct ownership ............................ 8,005,331 9,391,245
Derived from investment in managed
limited partnerships ....................... 11,906,965 9,130,403
Furniture, fixtures and other (at cost) ....... 368,780 350,019
----------- -----------
Total property .................................. 20,281,076 18,871,667
Less accumulated depreciation,
depletion and amortization .................... 7,344,892 10,438,886
----------- -----------
Property, net ................................... 12,936,184 8,432,781
----------- -----------
OTHER ASSETS:
Receivable from managed limited partnerships .. -- 1,153,267
Deferred tax asset ............................ 591,625 635,947
Other accounts receivable ..................... -- 131,004
Deferred organization expenses and other ...... -- 4,694
----------- -----------
Total other assets .............................. 591,625 1,924,912
----------- -----------
TOTAL ........................................... $20,001,802 $15,075,378
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
- -------------------------------------------------------------------------------
II-9
<PAGE> 21
ENEX RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS, DECEMBER 31, 1997 AND 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable ........................................ $ 878,646 $ 748,283
COMMITMENTS AND
CONTINGENT LIABILITIES .................................. -- --
------------ ------------
TOTAL LIABILITIES .......................................... 878,646 748,283
------------ ------------
MINORITY INTEREST .......................................... 5,694,983 1,564,058
------------ ------------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value;
5,000,000 shares authorized;
no shares issued
Common stock, $.05 par value;
10,000,000 shares authorized;
1,794,912 shares issued at December 31, 1997
and 1,684,412 shares issued at December 31, 1996 ....... 89,746 84,221
Additional paid-in capital ................................. 10,727,972 10,127,747
Retained earnings .......................................... 5,809,733 4,374,710
Less cost of treasury stock;
458,040 shares at December 31, 1997 and
326,540 shares at December 31, 1996 ....................... (3,199,278) (1,823,641)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY ................................. 13,428,173 12,763,037
------------ ------------
TOTAL ...................................................... $ 20,001,802 $ 15,075,378
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
- -------------------------------------------------------------------------------
II-10
<PAGE> 22
ENEX RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE YEARS ENDED DECEMBER 31, 1997
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ -----------
<S> <C> <C> <C>
REVENUES:
Oil and gas sales ...................... $ 9,093,316 $ 7,286,738 $ 5,924,664
Gas plant sales ........................ 1,002,326 915,593 669,774
Gain from sale of property ............. 923,654 258,786 614,758
Other Income ........................... 226,658 88,259 687,401
Interest Income ........................ 217,645 47,468 53,776
------------ ------------ -----------
Total revenues ......................... 11,463,599 8,596,844 7,950,373
------------ ------------ -----------
EXPENSES:
General and administrative ............. 2,061,090 1,826,762 1,689,742
Lease operating and other expenses ..... 3,455,717 2,490,701 2,322,509
Gas purchases and
plant operating expenses ............. 791,403 664,990 503,438
Production taxes ....................... 527,412 426,731 368,014
Depreciation, depletion and amortization 1,633,771 1,338,602 1,909,857
Impairment expense ..................... -- 3,908,370 --
Interest expense ....................... -- 12,429 170,838
------------ ------------ -----------
Total expenses ......................... 8,469,393 10,668,585 6,964,398
------------ ------------ -----------
Earnings (loss) before minority interest
and income taxes .................. 2,994,206 (2,071,741) 985,975
MINORITY INTEREST ...................... (1,012,449) (342,761) (116,233)
------------ ------------ -----------
Earnings (loss) before income taxes .... 1,981,757 (2,414,502) 869,742
INCOME TAX EXPENSE (CREDIT)
Deferred ............................... 16,082 (92,981) (399,658)
------------ ------------ -----------
NET INCOME (LOSS) ...................... $ 1,965,675 $ (2,321,521) $ 1,269,400
============ ============ ===========
Basic Earnings (Loss) per Share ........ $ 1.45 $ (1.70) $ 0.96
============ ============ ===========
Diluted Earnings (Loss) per Share ...... $ 1.37 $ (1.70) $ 0.89
============ ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
- -------------------------------------------------------------------------------
II-11
<PAGE> 23
ENEX RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock Additional
------------------------- Paid-in Retained Treasury
Shares Amount Capital Earnings Stock Total
--------- ------------ ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE,
January 1, 1995 .................... 1,638,912 $ 81,946 $ 9,814,064 $ 6,040,573 $ (1,723,071) $ 14,213,512
Exercise of stock options ............ 15,000 750 45,750 46,500
Reissue 22,800 shares of
Treasury stock through SPP .......... 84,600 116,400 201,000
Payment of $.20 per share
cash dividend ..................... (268,200) (268,200)
Net income ........................... 1,269,400 1,269,400
--------- ------------ ----------- ----------- ------------ ------------
BALANCE,
December 31, 1995 ................... 1,653,912 82,696 9,944,414 7,041,773 (1,606,671) 15,462,212
Exercise of stock options ............ 30,500 1,525 122,475 124,000
Reissue 22,800 shares of
Treasury stock through SPP ......... 60,858 116,280 177,138
Purchase of 34,494 shares
of Treasury stock ................... (333,250) (333,250)
Payment of $.25 per share
cash dividend ...................... (345,542) (345,542)
Net (loss) ........................... (2,321,521) (2,321,521)
--------- ------------ ----------- ----------- ------------ ------------
BALANCE,
December 31, 1996 .................. 1,684,412 84,221 10,127,747 4,374,710 (1,823,641) 12,763,037
Exercise of stock options ............ 110,500 5,525 393,225 398,750
Stock options granted ................ 207,000 207,000
Purchase of 131,500 shares
of Treasury stock .................. (1,375,637) (1,375,637)
Payment of $.40 per share
cash dividend ...................... (530,652) (530,652)
Net income ........................... 1,965,675 1,965,675
--------- ------------ ----------- ----------- ------------ ------------
BALANCE,
December 31, 1997 .................. 1,794,912 $ 89,746 $10,727,972 $ 5,809,733 ($ 3,199,278) $ 13,428,173
========= ============ =========== =========== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
- -------------------------------------------------------------------------------
II-12
<PAGE> 24
ENEX RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED DECEMBER 31, 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ......................................................... $ 1,965,675 $(2,321,521) $ 1,269,400
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation, depletion and amortization ................................ 1,633,771 1,338,602 1,909,857
Impairment of property .................................................. -- 3,908,370 --
Increase in deferred tax asset .......................................... 16,082 (92,981) (399,677)
Noncash expense from options granted .................................... 207,000 -- --
Noncash expense from stock purchase plan ................................ -- 177,138 201,000
Net gain on sale of property ............................................ (923,654) (258,786) (614,758)
Minority interest share of net income after distributions ............... (402,893) (107,126) (226,600)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable .............................. 180,213 860,422 1,000,933
(Increase) in prepaid expenses and other assets ......................... (91,988) (337,372) (277,380)
(Decrease) in accounts payable .......................................... (65,190) (146,165) (320,930)
----------- ----------- -----------
Net cash provided by operating activities ................................. 2,519,016 3,020,581 2,541,845
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property ......................................... 1,639,855 555,557 991,623
Property additions ..................................................... (758,585) (1,333,111) (1,927,925)
Decrease in notes receivable from managed limited partners ............. -- 16,902 49,816
----------- ----------- -----------
Net cash provided (used) by investing activities .......................... 881,270 (760,652) (886,486)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt .............................. -- -- 260,000
Repayment of long-term debt ........................................... -- (850,000) (1,334,000)
Purchase of treasury stock ............................................ (1,375,637) (333,250) --
Proceeds from exercise of stock options ............................... 398,750 124,000 46,500
Payment of cash dividend .............................................. (530,652) (345,542) (268,200)
----------- ----------- -----------
Net cash used by financing activities ..................................... (1,507,539) (1,404,792) (1,295,700)
----------- ----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS ................................. 1,892,747 855,137 359,659
Increase in cash from recognition of minority interest .................... 331,649 -- --
Increase in cash from conversion of receivable to L.P. units .............. 157,793 -- --
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR ......................................................... 1,862,281 1,007,144 647,485
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR .................................. $ 4,244,470 $ 1,862,281 $ 1,007,144
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the year for:
Interest ............................................................... $ -- $ 12,429 $ 176,089
Income taxes ........................................................... $ -- $ -- $ --
Noncash transactions:
Sale of oil and gas property ........................................... $ -- $ -- $ 123,202
Conversion of receivable to limited partner units ...................... $ 2,420,858 $ -- $ --
</TABLE>
See accompanying notes to consolidated financial statements.
- -------------------------------------------------------------------------------
II-13
<PAGE> 25
ENEX RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1997
- -------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General - Enex Resources Corporation ("Enex" or the "Company")
acquires interests in producing oil and gas properties and sponsors
and manages oil and gas income limited partnerships. At December 31,
1997, the Company served as managing general partner for one limited
partnership, Enex Consolidated Partners, L.P (the "Consolidated
Partnership"). The Consolidated Partnership owns $142 million, at
cost, of proved oil and gas properties in which the Company has a 4.1%
carries revenue interest as the general partner in addition to its
proportional interest as a limited partner of 55.508%. The
Consolidated Partnership was formed from thirty-four managed limited
partnerships (the "Predecessor Partnerships") effective June 30, 1997
(the "Consolidation"). For the years ended December 31, 1995 and 1996
and for the first six months of 1997, the Company served as managing
general partner for 39 publicly offered limited partnerships of Enex
Program I Partners, L.P., Enex Oil & Gas Income Programs II, III, IV,
V, VI, Enex Income and Retirement Fund, Enex 88-89 Income and
Retirement Fund, and Enex 90-91 Income and Retirement Fund. In 1997,
five of the Company's managed limited partnerships were liquidated.
In addition to Partnership activities, the Company owns interests in
220 productive oil and gas properties for its own account, and is the
operator of 98 properties. The total properties managed for its own
account and the Consolidated Partnership include interests in more
than 11,000 producing wells in 15 states.
Principles of Consolidation - The accompanying consolidated financial
statements include the accounts of the Company, its wholly owned
subsidiaries, Enex Securities Corporation and Gulf-Tex Maintenance
Corporation and Enex Consolidated Partners, L.P., and until June 30,
1997, the Company's pro rata share of the assets, liabilities,
revenues and expenses of the managed limited partnerships in which it
participated as the general partner. The Company used pro rata
consolidation for those partnerships in which it owned less than a 50%
interest and fully consolidates Partnerships in which it owns greater
than 50% interest. In 1996, the Company owned greater than 50% of only
one of the Partnerships that it managed at that time. Effective June
30, 1997, as a result of the Consolidation, the Company owned greater
than 50% of the only partnership it managed. The equity of minority
partners in Enex Consolidated Partners, L.P. is shown in the
consolidated balance as "minority interest". All intercompany balances
and transactions have been eliminated in consolidation.
Uses of Estimates - The preparation of the financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting periods.
Actual results could differ from these estimates.
II-14
<PAGE> 26
Accounts Receivable from Joint Owners - The Company, as operator for
jointly-owned properties, bills joint owners monthly for cost expended
by the Company for the joint owners' share of operating costs and
capital expenditures.
Other Accounts Receivable - The Company recorded, in consolidation,
distributions to limited partnerships which exceeded their pro rata
ownership percentage as other accounts receivable. Distributions to
limited partners exceeded their pro rata ownership percentage when
distributions to the general partner had been curtailed.
Oil and Gas Properties - The Company uses the successful efforts
method of accounting for its oil and gas operations. Under this
method, the costs of all development wells are capitalized. The costs
of unsuccessful exploratory wells are charged to earnings. Capitalized
costs are amortized on the units-of-production method based on
production and estimated total proved reserves. The Company has not
capitalized any internal costs into property.
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standard ("SAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of," which requires certain assets to be reviewed for
impairment whenever events or circumstances indicate the carrying
amount may not be recoverable. This standard requires the evaluation
of oil and gas assets on an individual property basis versus a
company-wide basis. Prior to this pronouncement, the Company assessed
properties on an aggregate basis. Upon adoption of SAS 121, the
Company began assessing properties on an individual basis, wherein
total capitalized costs may not exceed the property's fair market
value. The fair market value of each property was determined by H.J.
Gruy and Associates, Inc. ("Gruy"). To determine the fair market
value, Gruy estimated each property's oil and gas reserves, applied
certain assumptions regarding price and cost escalations, applied a
10% discount factor for time and certain discount factors for risk,
location, type of ownership interest, category of reserves,
operational characteristics, and other factors. In the first quarter
of 1996, the Company implemented SAS 121 and recognized a non-cash
impairment provision of $3,908,370 for certain oil and gas properties
and other assets due to changes in the overall market for the sale of
oil and gas and significant decreases in the projected production from
certain of the Company's oil and gas properties.
Furniture, Fixtures and Other - The Company records expenditures for
furniture and fixtures at cost. Expenditures for improvements are
capitalized. Expenditures for maintenance and repairs are charged to
operations as incurred. The Company provides for depreciation of its
furniture, fixtures and other equipment using the straight-line method
over an estimated useful life not to exceed five years.
Income Taxes - The Company uses the asset and liability method to
account for deferred income taxes, which focuses on the future tax
return consequences of temporary differences in determining the
deferred tax balances. Under this method, the deferred tax expense is
calculated as the change in the deferred tax balance sheet accounts
during the period. Temporary differences are measured at the balance
sheet date and are valued in accordance with current tax laws. See
Note 4 for more information.
Cash Flows - The Company presents its cash flows using the indirect
method and considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
II-15
<PAGE> 27
Reclassifications - Certain reclassifications have been made to the
prior year balances to conform to current year presentation.
Income Per Common Share - The Financial Accounting Standards Board has
issued Statement of Financial Accounting Standard ("SFAS") No. 128,
Earnings Per Share ("EPS"), which establishes standards for computing
and presenting earnings per share. Earnings per share are to be
presented in two forms, basic earnings per share and diluted earnings
per share. Net income used in the computation of basic and fully
diluted earnings per share is identical. The basic earnings per share
is calculated using the weighted average number of common shares
outstanding as the denominator, and the diluted earnings per share is
calculated using the weighted number of common shares outstanding plus
all dilutive common shares, as the denominator. Common share
equivalents include common stock options. The weighted average number
of shares used to compute basic and diluted earnings per common share
was:
<TABLE>
<CAPTION>
Effect of
Basic Dilutive Securities (1) Diluted
--------- ----------------------- ---------
<S> <C> <C> <C>
1997 1,351,056 86,515 1,437,571
1996 1,365,008 82,887 1,447,895 (2)
1995 1,323,204 96,437 1,419,641
</TABLE>
(1) Assumed issuance from conversion of stock options.
(2) Options aree anti-dilutive in 1996, as such dilutive earnings per
share is calculated using the basic weighted average shares.
Managed Limited Partnerships - Effective June 30, 1997, the Company
serves as the general partner to Enex Consolidated Partners, L.P. and
also participates as a limited partner to the extent of limited
partnership interests purchased directly by the Company. For the years
ended December 31, 1995 and 1996 and for the first six months of 1997,
the Company served as managing general partner for 39 publicly offered
limited partnerships of Enex Program I Partners, L.P., Enex Oil & Gas
Income Programs II, III, IV, V, VI, Enex Income and Retirement Fund,
Enex 88-89 Income and Retirement Fund, and Enex 90-91 Income and
Retirement Fund.
The Company is entitled as general partner to 4.1% of partnership
production revenues less 4.1% of partnership expenses, other than the
costs of acquiring partnership properties. The Company recognizes its
share of these net revenues as they are sold.
In addition to the above, the Company is reimbursed for direct
expenditures made on behalf of the partnership operations. Overhead
billed to the managed limited partnerships, which was treated as a
reduction in general and administrative expenses prior to
consolidation, was $1,102,742, $1,818,685 and $1,783,373 in the six
months ended June 30, 1997, and the years ended December 31, 1996 and
1995, respectively. General and Administrative expenses for the six
months ended December 31, 1997 billed to the managed limited
partnerships reduced minority interest share of net income by
$227,910.
2. COSTS REIMBURSABLE BY AND RECEIVABLE FROM MANAGED LIMITED PARTNERSHIPS
Certain general and administrative costs are incurred by the Company
on behalf of its managed limited partnerships. These costs are
allocated to the partnerships in accordance with the Partnership
II-16
<PAGE> 28
Agreements and are reimbursed to the Company. Effective June 30, 1997,
the Company converted its receivables from the Predecessor
Partnerships totaling $2,420,858 into limited partner units in the
Consolidated Partnership. Prior to the conversion of the receivable
into limited partner units in conjunction with the Consolidation, the
anticipated receipt of such receivables was scheduled in accordance
with projected future net revenues and based upon historical
collections. The receivables were classified as current or non-current
in accordance with such projections.
3. DEBT
The long-term debt at January 1, 1996 consisted of a $850,000 loan
from a bank under a $2.8 million revolving line of credit collaterized
by substantially all of the assets of the Company. The bank loan bore
interest at an average rate of 9.63% and 9.00% in 1995 and the first
five months of 1996, respectively. The loan was completely repaid in
the first five months of 1996. The Company maintains a $2.0 million
line-of-credit to secure certain letters of credit for future plugging
and abandoning obligations.
4. INCOME TAXES
Total income tax expense for 1997, 1996 and 1995 was different from
the amount computed by applying the federal statutory income tax rate
of 34% to earnings before income taxes for the following reasons:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Computed statutory tax expense ............................................ $ 673,797 $(820,931) $ 295,712
Increase (reduction) in taxes resulting from:
Increase (reduction) in
recognized deferred tax asset .......................................... (727,041) 726,447 (697,250)
Nondeductible Stock Option expense ..................................... 70,380 - -
Other, net ............................................................. (1,054) 1,503 1,880
--------- --------- ---------
Income tax expense (credit) ............................................... $ 16,082 $ (92,981) $(399,658)
========= ========= =========
</TABLE>
The components of income tax expense (credit) are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Income taxes currently payable ......................................... $ -- $ -- $ --
Deferred income expense (credit) ....................................... 16,082 (92,981) (399,658)
--------- --------- ---------
Income tax expense (credit) ............................................... $ 16,082 $ (92,981) $(399,658)
========= ========= =========
</TABLE>
II-17
<PAGE> 29
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amount of assets and liabilities for
financial reporting purposes and the amount used for income tax
purposes. The tax effects of significant items comprising the
Company's net deferred tax asset as of December 31, 1997 and 1996 were
as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
----------- -----------
<S> <C> <C>
Difference between tax and book net property
basis $ 382,133 $ 333,839
Difference between basis in managed limited
partnerships for financial reporting purposes and
income tax purposes 4,765,635 4,000,344
Intangible drilling costs which remain capitalized
for financial reporting purposes which were
deducted for federal income tax purposes (66,832) (85,485)
Net operating loss carry forward 1,015,224 1,129,347
(expires 2009-2012)
Allowance for bad debts not yet recognized
for income tax purposes 72,940 61,997
Timing difference from lawsuit contingency (63,952) (51,471)
Other, net -- 5,619
----------- -----------
Gross deferred tax asset 6,105,148 5,394,190
Valuation allowance (5,379,820) (4,652,779)
----------- -----------
Net deferred tax asset recognized $ 725,328 $ 741,411
=========== ===========
</TABLE>
The difference in basis of the managed limited partnerships is primarily
the result of differences in the underlying properties of the partnerships.
The valuation allowance reserves the net deferred tax asset due to
uncertainties inherent in the oil and gas market. The Company estimated the
amount of future tax benefit to be received from the deferred tax asset
using estimated future net revenues and future tax expenses. The remaining
amount of the gross deferred tax asset is reserved by a valuation
allowance. The valuation allowance increased by $727,041 and $726,447 in
1997 and 1996, and decreased by 697,250 in 1995.
II-18
<PAGE> 30
5. NOTES RECEIVABLE FROM MANAGED LIMITED PARTNERSHIPS
On August, 8, 1991, in conjunction with the EAC Acquisition the
Company acquired notes receivable from certain partnerships. The
notes, which accrued interest at prime plus three-fourths of one
percent, were recorded at their discounted realizable value. The gain
recognized from the early receipt of notes was $393,989 in 1995.
On December 29, 1994, in order to partially finance the purchase of a
property acquisition a managed limited partnership borrowed a net
$60,572 from the Company. The resulting note receivable bore interest
at the Company's borrowing rate of prime plus three-fourths of one
percent, or a weighted average of 9.76% and 8.35% during 1996 and 1995
respectively. Principal payments of $31,049 and $29,523 were received
on the note receivable in 1995 and 1996 respectively. The note was
completely repaid in the fourth quarter of 1996.
6. COMMON STOCK OPTIONS
The Company has an incentive stock option plan and a nonqualified
stock option plan, which authorize the issuance of options to purchase
up to 362,000 shares of common stock to directors, officers and key
employees. The Company has also granted options not covered by a plan.
The options expire at various dates through 2007 and are exercisable
at prices ranging from $3 - $9.875 per share. The following table
summarizes the Company's stock option activity:
<TABLE>
<CAPTION>
1997 1996 1995
Number Number Number
of Average of Average of Average
shares price shares price shares price
-------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning 163,500 $ 4.95 194,000 $ 4.81 209,000 $ 4.69
of year
Expired (36,000) 3.75 -- -- -- --
Renewed 36,000 3.75 -- -- -- --
Granted 125,000 9.875 -- -- -- --
Exercised (110,500) 3.62 (30,500) 4.07 (15,000) 3.10
-------- -------- -------- ------- -------- -------
Outstanding, end of year 198,000 $ 9.25 163,500 $ 4.95 194,000 $ 4.81
======== ======== ======== ======= ======== =======
</TABLE>
The Company recognizes compensation expense with respect to any
nonqualified option pursuant to Accounting Principles Board (APB)
Opinion No. 25 as the difference between the market price per share
and the option price per share on the date of the grant. Accordingly,
compensation expense of $207,000 was recognized upon the grant of
options in the first quarter of 1997, no compensation expense was
recognized in 1996 or 1995. The Company does not intend to adopt
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" which requires an alternative method for measuring
compensation cost. If adopted the net income in 1997 would have been
reduced by $320,712 or $.24 per share. The market value was determined
by utilizing the Black-Scholes model for determining option prices
II-19
<PAGE> 31
adjusted for the lack of marketability of the instruments. The
provisions of the statement, if adopted, would not have affected
reported amounts for net income (loss) per share in 1996 and 1995,
since no options were granted.
On May 19, 1992, the Company's shareholders approved the Enex
Resources Corporation Employee Stock Purchase Program (the "SPP"). All
full-time employees, officers and directors were eligible for
participation in the SPP, which provided for the monthly contribution
of shares of the Company's common stock equal to 50% of a
participant's open market purchases of the Company's common stock for
the preceding month (the "Stock Contribution"). The Stock Contribution
was limited to a maximum of 2,500 shares per participant per SPP year.
Each Stock Contribution, although immediately vested, was held in
escrow for a six month holding period prior to its distribution to the
participant. A total of 22,800 shares were contributed to participants
in the SPP during both 1996 and 1995. The plan was discontinued in
1996. The Company recognized an expense of $177,138 and $201,000 from
the SPP in 1996 and 1995, respectively.
7. LEASE COMMITMENTS
The Company is the lessee under noncancelable operating leases for
office space and equipment. The following is a schedule of the
Company's remaining future rental requirements under the leases as of
December 31, 1997:
<TABLE>
<S> <C>
1998 $ 159,375
1999 16,537
2000 5,083
---------
Total payments required $ 180,985
=========
</TABLE>
Rent expense for all operating leases was $204,237, $213,459 and
$211,038 for the years ended December 31, 1997, 1996 and 1995,
respectively.
8. LITIGATION SETTLEMENTS The Company and one of its managed limited
predecessor partnerships, in which the Company owns general and
limited partnership interests, were named as parties to a lawsuit
filed by Texas Crude, Inc. ("Texas Crude"). Texas Crude sought to
recover legal and other fees totaling $600,000. In August 1993, a
judgement was granted in favor of Texas Crude for $414,203, plus
interest by the 101st Judicial District Court of Texas.
The Company appealed the verdict and filed a counterclaim for funds
that were wrongfully withheld by Texas Crude. In December 1994, the
Fifth District Court of Appeals reversed the judgement of the trial
court and rendered judgement in favor of the Company and the
partnership. Accordingly, a receivable was established. Interest on
the ensuing receivable is accrued at 10% per annum. At December 31,
1997, the receivable was $338,860.
9. COMMITMENTS AND CONTINGENT LIABILITIES
Until June 30, 1997, the Company was committed to offer to repurchase
the limited partners' interests in its managed limited partnerships
formed under the Programs (except for Programs I, V and VI) at
II-20
<PAGE> 32
annual intervals. The purchase price was based primarily on reserve
reports prepared by independent petroleum engineers, reduced by a risk
factor. Generally, for the first three annual purchase offers after
the formation of a partnership, the Company's annual repurchase
obligation was limited to the lesser of 10% to 25% of initial
partnership subscriptions or $1,000,000 per partnership. Effective
June 30, 1997, the Company is committed to offer to purchase the
limited partners' interests in the Consolidated Partnership at annual
intervals. As of December 31, 1997, such commitments totaled
$5,115,761. During 1997, 1996 and 1995, the Company paid cash to
repurchase limited partner interests as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Program I $ 9,569 $ 56,189 $ 43,409
Program II 14,033 50,268 23,697
Program III 10,004 42,748 8,544
Program IV 9,418 10,166 7,847
Program V 30,084 36,870 13,875
Program VI 84,994 4,902 393
Income and Retirement Fund 4,029 26,911 12,232
88-89 Income and Retirement Fund 5,952 6,520 5,987
90-91 Income and Retirement Fund 10,529 19,694 10,563
Consolidated Partners, L.P.
391,180 -- --
-------- -------- --------
TOTAL $569,793 $254,268 $126,547
======== ======== ========
</TABLE>
As general partner, the Company is contingently liable for all debts
and actions of the Consolidated Partnership. However, in management's
opinion, the existing assets of the Consolidated Partnership is
sufficient to satisfy any such partnership indebtedness.
The Company has an employment agreement with its founder and
President, Gerald B. Eckley. The agreement, which was amended on May
19, 1992, provides that Mr. Eckley will be paid a minimum salary of
$240,000 per year for a five year term. As long as Mr. Eckley is
employed by the Company, the agreement will be automatically extended
every May 19th for an additional year. The agreement provides for
compensation continuation benefits in the event of Mr. Eckley's death
or disability. If Mr. Eckley terminates the agreement following a
change of control of the Company or because of a breach of the
material provisions of the agreement or because performance of his
duties becomes hazardous to his health, he will remain entitled to the
full base compensation then in effect as severance pay until the
normal expiration of the agreement.
II-21
<PAGE> 33
10. SUBSEQUENT EVENTS
In February 1998, Middle Bay Oil Company, Inc. ("Middle Bay"), an
independent oil and gas producer, issued a tender offer to purchase
all of the Company's outstanding common stock at $15 cash per share.
The tender offer expired on March 20, 1998, with approximately 79% of
the outstanding shares of common stock of the Company tendered to
Middle Bay. The aggregate amount to be paid by Middle Bay will be
$15,724,230 in cash, plus payments to holders of options to purchase
143,000 shares of Enex stock. As a result, Enex will become a
subsidiary of Middle Bay upon the closing of the tender which is
expected to be March 27, 1998.
On March 17, 1998, the Enex Board of Directors took the following
steps in order to facilitate Middle Bay's tender offer:
(1) Added three (3) Middle Bay nominees to the Enex Board of Directors
to facilitate the transfer of control of Enex to Middle Bay. The three
new directors, whose appointment increased total board membership from
six to nine members, are Middle Bay's President, John J. Bassett, its
Vice President for Corporate Development, Stephen W. Herod, and one of
its non-employee directors, Gary R. Christopher. Messrs. Bassett,
Herod, and Christopher will hold office until the next annual meeting
of Enex stockholders and until their successors are elected and
qualified.
(2) Approved the acquisition of the tendered shares of Enex common
stock by Middle Bay pursuant to Section 203 of the Delaware General
Corporation Law; and
(3) Amended the Rights Agreement between Enex and its transfer agent,
American Stock Transfer, Incorporated, dated September 4, 1990, as
amended through April 12, 1994, to make the stock purchase rights
created by the agreement inapplicable to transactions which are
approved by Enex's Board of Directors and to increase the rights
exercise price to $33.00 to reinstate the approximate ratio between
the exercise price and the market price of Enex common stock, prior to
Middle Bay's tender offer, to that which was in effect (approximately
3 to 1) when the rights were created.
In addition, Gerald B. Eckley and the five other Enex directors
elected by Enex's stockholders, Robert D. Carl, III, William C.
Hooper, Jr., Martin J. Freedman, James T. Shorney, and Stuart Strasner
(collectively, the "Incumbent Enex Directors") have tendered their
resignations, effective upon the successful completion of the tender
offer. As soon as possible, but not sooner than the tenth day after
this Information Statement is mailed to all of the stockholders of
Enex, Messrs. Bassett, Herod, and Christopher are expected to appoint
four (4) additional individuals to fill the vacancies caused by those
resignations.
According to information provided to Enex by Middle Bay, the source of
the consideration to be paid for the shares of the tendering Enex
stockholders is available cash and working capital and a drawdown of
approximately $15,000,000 under Middle Bay's revolving credit facility
with the Bank of Oklahoma, N.A. The loan requires Middle Bay to cause
Enex, a subsidiary of Middle Bay, to become a party to and pledge
certain of its assets as collateral under the credit facility. The
loan agreement provides for a $50,000,000 convertible revolving line
of credit pursuant to which the Bank, with other participating banks,
shall extend from time to time loans to Middle Bay and its
subsidiaries for Bank-approved purposes to the extent of Middle Bay's
available "collateral borrowing base" as provided in the loan
agreement. The collateral borrowing base is determined from time to
time by the Bank based on evaluations of the oil and gas reserves
attributable to Middle Bay's and its subsidiaries' interests in proven
producing oil and gas properties. The extension of credit by the Bank
II-22
<PAGE> 34
to Middle Bay for the purpose of acquiring Enex shares was approved in
light of the Bank's evaluation of Enex's proven producing reserves and
their contribution to Middle Bay's bank borrowing base.
The loans extended under the credit facility may convert to a 72 month
term loan on or after March 31, 1998, payable in equal monthly
payments of principal plus interest at variable rates at either bank
prime or 1.75 - 2.00 points above the London Interbank Offered Rates
quoted from time to time at the election of Middle Bay.
Reference is made to Middle Bay's Offer to Purchase dated February 19,
1998 (the "Offer to Purchase") and the related Letter of Transmittal,
which was provided to all Enex stockholders in February for additional
information concerning Middle Bay, an oil and gas company engaged in
the exploration for oil and gas in the United States, its tender
offer, the letter of intent entered into between Enex and Middle Bay
on January 29, 1998, and the "Board Action Condition" the steps taken
by the Enex Board of Directors on March 17, 1998 was intended to
satisfy.
II-23
<PAGE> 35
ENEX RESOURCES CORPORATION SUPPLEMENTARY OIL AND GAS INFORMATION
- -------------------------------------------------------------------------------
Costs Incurred
The following costs were incurred in connection with the Company's oil and gas
activities for the years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- ---------
<S> <C> <C> <C>
Acquisition of proved mineral interests
and related equipment and facilities $346,094 $205,955 $ 411,545
Development costs 412,491 502,071 1,516,380
</TABLE>
Capitalized Costs
The following presents the Company's capitalized costs at December 31, relating
to its oil and gas activities:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Proved mineral interests and
related equipment and facilities $ 19,912,296 $ 16,071,214
Accumulated depreciation,
depletion and amortization 7,032,078 7,690,171
</TABLE>
II-24
<PAGE> 36
Proved Oil and Gas Reserves Quantities (Unaudited)
The following presents an estimate of the Company's proved oil and gas reserve
quantities. Oil reserves are stated in barrels and natural gas reserves in
thousand cubic feet ("Mcf"). All of the Company's reserves are located within
the United States.
<TABLE>
<CAPTION>
Oil Natural Gas
PROVED DEVELOPED AND UNDEVELOPED RESERVES: (Barrels) (Mcf)
------------ ------------
<S> <C> <C>
January 1, 1995 1,089,187 12,446,039
Revisions of previous estimates (6,586) 711,925
Purchases of minerals in place 31,887 727,929
Sales of minerals in place (6,841) (643,277)
Production (200,778) (1,671,517)
------------ ------------
December 31, 1995 906,869 11,571,099
Revisions of previous estimates 71,599 2,374,691
Extensions and discoveries 3,840 740,853
Purchases of minerals in place 42,950 194,978
Sales of minerals in place (35,535) (251,188)
Production (177,793) (1,649,530)
------------ ------------
December 31, 1996 811,930 12,980,903
Revisions of previous estimates 49,386 (948,061)
Additions from recognition of minority interest 456,027 2,617,242
Purchases of minerals in place 364,252 2,321,700
Sales of minerals in place (104,810) (320,521)
Production (277,229) (1,735,704)
------------ ------------
December 31, 1997 1,299,556 14,915,559
============ ============
Minority Interest in Developed and Undeveloped Reserves 490,745 4,727,790
============ ============
PROVED DEVELOPED RESERVES:
December 31, 1995 808,829 11,407,758
============ ============
December 31, 1996 745,998 12,980,903
============ ============
December 31, 1997 1,299,556 14,915,559
============ ============
Minority Interest in Proved Developed Reserves 490,745 4,727,790
============ ============
</TABLE>
II-25
<PAGE> 37
Standardized Measure of Discounted Future Net Cash Flows and Changes Therein
Relating to Proved Oil and Gas Reserves at December 31, 1997, 1996 and 1995
(Unaudited)
- --------------------------------------------------------------------------------
The following presents the Company's standardized measure of discounted future
net cash flows as of December 31:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ -----------
<S> <C> <C> <C>
Future cash inflows $ 53,705,844 $ 69,214,417 $39,963,675
Future production and development costs (19,580,026) (20,231,158) (15,363,195)
------------ ------------ -----------
Future net cash flows before income taxes 34,125,818 48,983,259 24,600,480
10% annual discount (13,945,849) (20,570,795) (9,421,006)
Future income taxes, net of 10%
annual discount -- (4,309,259) --
------------ ------------ -----------
Standardized measure of future
discounted net cash flows of proved
oil and gas reserves 20,179,969 $ 24,103,205 $15,179,474
============ ============ ===========
Minority interest in standardized measure of
future discounted net cash flows of proved
oil and gas reserves $ 7,133,423 $ 4,695,294 $ 2,783,461
============ ============ ===========
</TABLE>
The future net cash flows were computed using year-end prices and costs and
year-end statutory tax rates that relate to proved oil and gas reserves in which
the Company has an interest.
The following presents the principal sources of change in the standardized
measure of discounted future net cash flows during 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ -----------
<S> <C> <C> <C>
Sales and transfers of oil and gas
produced, net of production costs $ (5,132,715) $ (4,369,306) $(3,234,141)
Net changes in prices and production
costs (12,777,615) 11,231,070 2,316,665
Purchases of minerals in place 3,994,411 728,187 815,480
Extensions and discoveries, net of future
production and development costs -- 1,572,413 --
Sales of minerals in place (999,980) (317,042) (580,008)
Revisions of previous quantity estimates (573,312) 4,426,533 582,703
Increase in reserves due to consolidation of
managed limited partnerships 4,782,640
Accretion of discount 2,841,246 1,517,947 1,420,615
Net change in income taxes 4,309,259 (4,309,259) 758,358
Changes in production rates (timing) (367,170) (1,556,812) (347,989)
and other
------------ ------------ -----------
Change in standardized measure of
discounted future net cash flows $ (3,923,236) $ 8,923,731 $ 1,731,683
============ ============ ===========
</TABLE>
II-26
<PAGE> 38
In addition to the above presented oil and gas reserves, the Company
also has interests in certain gas processing plants and gas gathering
systems. The total estimated future production of plant products is
138,083 barrels. The discounted future net cash flows (net of
estimated future income taxes) relating to the Company's interests in
these facilities are estimated to be approximately $112,004. The
minority interest in this future production is 58,910 barrels and
$47,784 of the discounted future net cash flows.
This valuation procedure does not purport to represent the fair market
value of the Company's oil and gas properties. An estimate of fair
market value would also take into account, among other factors,
anticipated changes in future prices of oil and gas and related
development and production costs and the likelihood of future
recoveries of oil and gas quantities different from the current
estimate of proved reserves.
II-27
<PAGE> 39
Item 8. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure
Not applicable
II-28
<PAGE> 40
PART III
-------------------------------------------------------------------------------
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
The Directors and executive officers of Enex are:
Gerald B. Eckley. Mr. Eckley, age 71, has served as a Director, President
and Chief Executive Officer of the Company since its formation in 1979. He was
employed by Shell Oil Company from 1951 to 1967 and served in managerial
capacities from 1959 to 1967. From 1967 to 1969, he was Director of Fund Raising
at the University of Oklahoma and from 1969 to 1971, was Vice President of Land
and Operations for Imperial American Management Company. In 1971, Mr. Eckley was
a petroleum consultant and in 1972-1973 was General Counsel and Executive
Director of the Oil Investment Institute. From 1973 to 1974, he was Manager of
Oil Properties, Inc. and from 1974 to 1976, was Vice President, Land and Joint
Ventures for Petro-Lewis Corporation. From 1977 to August 1979, Mr. Eckley was
President of Eckley Energy, Inc., a company engaged in purchasing and selling
oil and gas properties. Mr. Eckley received an L.L.B. degree from the University
of Oklahoma in 1951 and a Juris Doctor degree from the University of Oklahoma in
1970.
William C. Hooper, Jr. Mr. Hooper, age 60, has been a Director of the
Company since its formation in 1979 and is a member of the General Partner's
Audit and Compensation and Options Committees. In 1960 he was a staff engineer
in the Natural Gas Department of the Railroad Commission of Texas, with
principal duties involving reservoir units and gas proration. In 1961 he was
employed by the California Company as a Drilling Engineer and Supervisor. In
1963 he was employed as a Staff Engineer by California Research Corporation and
in 1964 rejoined the California Company as a project manager having various
duties involving drilling and reservoir evaluations. In 1966 he was Executive
Vice President for Moran Bros. Inc., coordinating and managing all company
activities, drilling operations, bidding and engineering. From 1970 until the
present, he has been self-employed as a consulting petroleum engineer providing
services to industry and government and engaged in business as an independent
oil and gas operator and investor. From 1975 to 1987 he was also a Director and
President of Verna Corporation, a drilling contractor and service organization.
He received a B.S. degree in Petroleum Engineering in 1960 from the University
of Texas and an M.S. degree in Petroleum Engineering from that same University
in 1961.
Stuart Strasner. Mr. Strasner, age 68, was a Director of the Company from
its formation until October of 1986. He was reappointed to the Board on April
19, 1990 to fill a vacancy. He is a member of the Audit Committee. He is a
professor of business law at Oklahoma City University and was Dean of the law
school at Oklahoma City University from July 1984 until June 1991. Prior to July
1984, Mr. Strasner was an attorney in private practice with McCollister,
McCleary, Fazio and Holliday in Oklahoma City, Oklahoma. From 1959 to 1974, he
was employed by various banks, bank holding companies and an insurance company
in executive capacities. From 1974 to 1978, he was a consultant to various
corporations such as insurance companies, bank holding companies and small
business investment companies. From 1978 until late 1981, he was Executive
Director of the Oklahoma Bar Association, and from 1981 to 1983 was a Director
and President of PRST Enterprises, Inc., a real estate development company. Mr.
Strasner holds an A.B. degree from Panhandle A&M College, Oklahoma, and a J.D.
degree from the University of Oklahoma. He is a member of the Fellows of the
American Bar Association and a member of the Oklahoma Bar Association. Mr.
Strasner is also a director of Health Images, Inc., a public company which
provides fixed site magnetic resonance imaging ("MRI") services.
III-1
<PAGE> 41
Martin J. Freedman. Mr. Freedman, age 73, was one of the Company's founders
and a member of its Board of Directors as well as a board member of Enex
Securities Corporation until June of 1986. He was reappointed to the Board on
April 19, 1990 to fill a vacancy. He is a member of the Compensation and Options
Committee. He is currently President of Freedman Oil & Gas Company, engaged
primarily in the management of its exploration and producing properties, and the
managing partner Martin J. Freedman & Company which has an interest in
approximately one hundred producing oil and/or gas wells. Mr. Freedman is a
lifetime member of the Denver Petroleum Club as well as being a lifetime member
of the Denver Association of Petroleum Landmen. He was an officer and Director
and/or founder of several former private and public companies. Mr. Freedman
entered the oil and gas business in 1954 when he joined Mr. Marvin Davis of the
Davis Oil Company. In 1956, he became President of Central Oil Corporation, a
company engaged in oil and gas exploration. From 1958 on, Mr. Freedman operated
as Martin J. Freedman Oil Properties and was President of Oil Properties, Inc.,
a private corporation. Mr. Freedman attended Long Island University and New York
University. He received a bachelor's degree in Psychology and also attended New
York University's graduate school.
James Thomas Shorney. Mr. Shorney, age 72, has been a Director of Enex
since April of 1990 and is a member of the Compensation and Options Committee.
He has been a petroleum consultant and Secretary/Treasurer of the Shorney
Company, a privately held oil and gas exploration company, from 1970 to date.
From 1970 to 1976, he also served as a petroleum consultant in Land and Lease
Research Analysis Studies for the GHK Company. He was an oil and gas lease
broker from 1962 to 1970 and employed by Shell Oil Company in the Land
Department from 1954 to 1962. Before joining Shell Oil Company, he served as
Public Information Officer in the U.S. Army Air Force from 1950 to 1953
including attending Georgetown University Graduate School in 1952. Mr. Shorney
graduated from the University of Oklahoma with a B.A. degree in Journalism in
1950. From 1943 to 1945, he served in the U.S. Army Air Force as an air crew
member on a B-24 Bomber. Mr. Shorney is a member of the Oklahoma City
Association of Petroleum Landmen on which he has served as Director and
Secretary/Treasurer. He is an active member of the American Association of
Petroleum Landmen. In 1975, Mr. Shorney was first listed in the London Financial
Times' Who's Who in World Oil and Gas.
Robert D. Carl, III. Mr. Carl, age 44, was appointed a Director of Enex on
July 30, 1991 and is a member of the Audit Committee. He is President, Chief
Executive Officer and Chairman of the Board of Health Images, Inc., a public
company whose securities are traded on NYSE, which provides fixed site magnetic
resonance imaging ("MRI") services. From 1978 to 1981, Mr. Carl also served as
President of Carl Investment Associates, Inc. a registered investment advisor.
In 1981, Mr. Carl joined Cardio-Tech, Inc., as general counsel and as an officer
and Director. Upon the sale and reorganization of Cardio-Tech, Inc. into
Cardiopul Technologies in 1982, he served as its Executive Vice President and as
a Director. In March, 1985 he was elected President, Chief Executive Officer and
Chairman of Cardiopul Technologies which spun off its non-imaging medical
services business and changed its name to Health Images, Inc. Mr. Carl received
a B.A. in History from Franklin and Marshall College, Lancaster, Pennsylvania in
1975 and a J.D. from Emory University School of Law, Atlanta, Georgia in 1978.
Mr. Carl is a trustee of Franklin & Marshall College and is a member of the
State Bar of Georgia.
On January 4, 1996, the SEC filed a complaint in the United States District
Court for the District of Columbia against Mr. Carl alleging that Mr. Carl
violated Section 16(a) of the Securities Exchange Act of 1934 ("Exchange Act"),
and Rule 16a-2 and 16a-3 (and former Rule 16a-1) thereunder, by failing to
timely file reports concerning thirty-eight securities transactions in his
mother's brokerage accounts involving shares of Health Images, Inc. stock. The
SEC took the position that because Mr. Carl (1) provided substantial
III-2
<PAGE> 42
financial support to his mother, (2) commingled his mother's assets with his
own, (3) provided a substantial portion of the funds used to purchase the shares
in question, and (4) received from his mother a substantial portion of the sales
proceeds, he, therefore, had a pecuniary interest in, and was a beneficial owner
of, the shares in question.
In response to the SEC's action, Mr. Carl disgorged to Health Images, Inc.
approximately $92,400 in short-swing profits from the trading in his mother's
account, plus interest thereon of approximately $52,600. The SEC further
requested the court to impose a $10,000 civil penalty against Mr. Carl pursuant
to Section 21(d)(3) of the Exchange Act. Without admitting or denying the
allegations in the complaint, Mr. Carl consented to the entry of a final
judgement imposing the $10,000 penalty. On January 12, 1996, a federal judge
entered the final judgement in this matter, and Mr. Carl has since filed amended
reports on Forms 4 and 5 reflecting these transactions in his mother's accounts.
In relation to the same matter, the SEC has issued an administrative Order
pursuant to Section 21C of the Exchange Act against Mr. Carl, finding that he
violated Section 16(a) and the rules thereunder and requiring him to cease and
desist from committing or causing any violation or future violation of those
provisions. Without admitting or denying allegations in the SEC's Order, Mr.
Carl consented to the entry of the Order.
John J. Bassett. Mr. Bassett, age 39, is Middle Bay's President and Chief
Executive Officer, a position he has held since 1992. Mr. Bassett has also
served as the Chairman of the Board of Directors of Middle Bay since 1992. In
March 1998, he was named to the board of directors of Enex. He has also served
as President, chief executive officer and a director of Bay City Energy Group,
Inc., a company that explores for oil and gas in the United States and is a
principal shareholder of Middle Bay.
Stephen W. Herod. Mr. Herod, age 39, currently serves as Vice President for
Corporate Development and as director of Middle Bay, positions he has held since
July 1997. In March 1998, he was named to the board of directors of Enex. From
April 1992 to June 1997, Mr. Herod served as President of Shore Oil Company, a
privately held independent exploration and production company, which was
acquired by Middle Bay in June 1997.
Gary R. Christopher. Mr. Christopher, age 48, is the Acquisition
Coordinator for Kaiser-Francis Oil Company, a position he has held since
February 1995. In March 1998, he was named to the board of directors of Enex.
From January 1993 to February 1995, Mr. Christopher served as Senior Vice
President and Manager of Energy Lending for the Bank of Oklahoma, which he
continues to serve as a consultant. Mr. Christopher has been a director of
Middle Bay since May 1997. He also serves on the board of Petrocorp Incorporated
and is a member of the Society of Petroleum Engineers and the Society of
Petroleum Evaluation Engineers.
James A. Klein. Mr. Klein, age 35, joined the Company as Controller in
February 1991. In June 1993, he was appointed President and Principal of Enex
Securities Corporation. In October 1997 he was appointed Chief Financial
Officer, Treasurer and Secretary of Enex. From June 1988 to February 1991, he
was employed by Positron Corporation in Houston. From July 1987 to May 1988, he
was employed by Transworld Oil Company in Houston and from September 1985 until
July 1987, he was an accountant with Deloitte Haskins & Sells in Houston, Texas,
auditing oil and gas and oil service companies. Mr. Klein is a Certified Public
Accountant and holds a B.A. in Accounting (1985) from the University of Iowa. He
is a member of the American Institute of Certified Public Accountants and the
Iowa Society of Certified Public Accountants.
III-3
<PAGE> 43
Larry W. Morris. Mr. Morris, age 48, joined the Company as a Revenue
Accountant in March 1984. In May 1986, he was appointed to Revenue Accounting
Manager. In June 1990, he was appointed to Assistant Controller, then in October
1997 Mr. Morris was appointed Controller. From 1981 to 1984, Mr. Morris was
employed with Inexco Oil Company as a revenue accountant. Prior to 1981, he was
employed in various accounting positions. Mr. Morris holds a B.S. in accounting
from Western Kentucky University.
The following were chosen to be nominees to the Board of Directors of the
Company in conjunction with the acquisition of the Company by Middle Bay.
Frank E. Bolling, Jr. Mr. Bolling, age 39, is Vice President of Midstream
Fuel Service, Inc. and its Pepco-Retail Division, a distributor for Chevron
U.S.A., Inc. From 1993 to 1995, Mr. Bolling served as General Manager of the
Dantzler Bulk Division of Fuel Services, Inc., a distributor for Chevron U.S.A.,
Inc. Mr. Bolling has been a director of Middle Bay since 1995.
Alvin V. Shoemaker. Mr. Shoemaker, age 59, has been principally occupied
for the past five years as a private investor. From 1986 to 1994, Mr. Shoemaker
served as Chairman of the Board of Trustees of the University of Pennsylvania.
He has also served as Vice Chairman of the Securities Industry Association, and
as a director of Harcourt Brace Jovanovich, Royal Insurance of America, the
Council on Foreign Relations and the Wharton School of Finance. Mr. Shoemaker
has been a director of Middle Bay since July, 1997. He also serves on the Board
of Hanover Compressor Co.
Edward P. Turner, Jr. Mr. Turner is a managing partner of the law firm of
Turner, Onderdonk, Kimbrough & Howell, P.A., of Chatom, Alabama, with which he
has been associated for over 25 years. Mr. Turner has served as a director of
Middle Bay since its inception in 1992. He is also a director of BCEG, Inc. and
President and a director of ERW, Inc.
C. J. Lett, III. Mr. Lett currently serves as Executive Vice President and
as a director of Middle Bay, positions he has held since February, 1997. Mr.
Lett also serves as President, chief executive officer and a director of Bison
Energy Corporation, which he founded in and has served since 1981 and which was
acquired by Middle Bay in February, 1997.
Item 10. Executive Compensation
There is shown below information concerning the annual and long-term
compensation for services in all capacities to Enex for the fiscal years ended
December 31, 1995, 1996 and 1997, of those persons who were (i) the chief
executive officer and (ii) the other executive officers of Enex (the "Named
Officers") who earned at least $100,000 during the fiscal year ended December
31, 1997:
III-4
<PAGE> 44
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------- ----------------------
Awards Payouts
------ -------
Name Shares All
and Underlying Other
Principal Position Year Salary Bonus Options Compensation
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Gerald B. Eckley 1997 $240,000 $ 54,984 25,000 $ 370,000 (1)
President, 1996 $240,000 $ 53,000 - 0 - $ 23,368 (2)
Chief Executive Officer 1995 $240,000 $ 32,400 - 0 - $ 21,175 (2)
James A. Klein 1997 $ 71,167 $ 33,874 25,000 $ 76,875 (1)
Controller
</TABLE>
(1) The amounts shown represent the value realized upon the exercise of
options to purchase Enex common stock.
(2) The amounts shown represent the aggregate value of monthly
contributions of shares of Enex's common stock equal to 50% of a
participant's open market purchases of Enex's common stock for the
preceding month (limited to a maximum of 2,500 shares per participant per
year) pursuant to Enex's Employee Stock Purchase Program (the "Program").
All officers, directors and full-time employees were eligible to
participate in the Program until it was terminated in 1996.
Option Grants
On January 15, 1997 non-qualified options to purchase a total of 75,000
shares were awarded to three executive officers (including Mr. Eckley - 25,000
and Mr. Klein - 25,000) and options for an additional 10,000 shares were awarded
to each of the Company's five non-employee directors. These options, which
expire January 15, 2007, are exercisable at $9.875 per share, which was equal to
the fair market value of the Company's Common Stock on the date of grant. All of
the options were immediately exercisable. Mr. Eckley and Mr. Klein both received
33% of the total of such options granted to employees. Utilizing the
Black-Scholes method of determining the market value of options, such options
would be valued at $49,800 to both Mr. Eckley and Mr. Klein, assuming an
expected life of ten (10) years, interest rate of 6.5%, volatility of 15%, a 3%
dividend yield, and a 20% discount due to the lack of marketability of the
options.
Option Exercises and Year-End Values
Shown below is information concerning the exercise and year-end values of
the options to purchase Enex's common stock granted in prior years for the Named
Officers and held by them at December 31, 1997.
III-5
<PAGE> 45
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUE
<TABLE>
<CAPTION>
Number of Shares Value of
Underlying Unexercised Unexercised In-the-Money
Number of Options at December 31, 1997 Options at December 31, 1997 (1)
Shares Acquired Value
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
Gerald B. Eckley 60,000 $370,000 35,000 - $ 66,875 $ 0
James A. Klein 12,500 $ 76,875 30,000 - $ 50,625 $ 0
</TABLE>
(1) The dollar values are calculated by determining the difference
between the fair market value of the securities underlying the options
and the exercise price of the options at fiscal year-end.
Compensation of Directors
During 1997, each non-employee director received $1,200 as compensation for
each meeting which he attended in person and $1,800 per calendar quarter.
Employment Agreement
The employment agreement between Enex and its founder and president, Gerald
B. Eckley, provides for a minimum salary of $200,000 per year for a five-year
term beginning each May 19. Salary increases are at the discretion of the Board
of Directors. Mr. Eckley's base salary was $240,000 in 1997. So long as Mr.
Eckley is employed by Enex, the agreement will be automatically extended for an
additional year every May 19 unless Mr. Eckley or the Board elects to terminate
the automatic extension feature. The agreement provides for compensation
continuation benefits in the event of Mr. Eckley's death or disability. If Mr.
Eckley terminates the agreement following a change of control of Enex, for a
breach of the material provisions of the agreement or because performance of his
duties becomes hazardous to his health, he will remain entitled to the full base
compensation then in effect, as severance pay, until the expiration of the
agreement.
Mr. Eckley and Middle Bay are expected to enter into a Consulting Agreement
which will replace Mr. Eckley's employment agreement upon his resignation as
Enex's president and chief executive officer, which is scheduled to occur on
April 1, 1998. The terms of the Consulting Agreement have not yet been finalized
but are expected to provide that Mr. Eckley will be paid $20,000 per month by
Middle Bay for approximately four years. If the Consulting Agreement is not
entered into, Mr. Eckley's employment agreement will continue in effect.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth the ownership of the Company's common
stock held by (i) each person who owns of record or who is known by the Company
to own beneficially more than 5% of such stock as of December 31, 1997, (ii)
each of the directors of the Company as of December 31, 1997, (iii) each of the
executive officers of the Company named in the Summary Compensation Table below
as of December 31, 1997, and (iv) all of the Company's directors and executive
officers as a group as of December 31, 1997. As of December 31, 1997, the
Company had 1,323,328 shares of common stock issued and outstanding. The number
of shares and the percentage of the class beneficially owned by the persons
named in the table and by all directors and executive officers as a group is
presented in accordance with Rule 13d-3 of the Securities and Exchange
Commission (the "SEC") and includes, in addition to shares actually issued and
outstanding, unissued shares which are subject to issuance upon exercise of
options within 60 days. Except as otherwise indicated, the persons named in the
table have sole voting and dispositive power with respect to all securities
listed.
<TABLE>
<CAPTION>
Number
of Shares
Beneficially Percent
Names and Addresses of Beneficial Owners Owned of Class
<S> <C> <C>
FMR Corp.
82 Devonshire Street
Boston, MA 02109................................ 144,300(1) 10.90%
Franklin/Templeton
Group of Funds
777 Mariners Island Blvd.
San Mateo, CA 94404............................. 128,100(2) 9.68%
Directors and Executive Officers (3)
Gerald B. Eckley................................ 314,900 22.20%
Robert D. Carl, III............................. 81,500 6.09%
Robert E. Densford.............................. 98,710 7.11%
William C. Hooper, Jr. ......................... 18,000 1.34%
Martin J. Freedman.............................. 42,000 3.14%
James Thomas Shorney............................ 15,000 1.12%
Stuart Strasner................................. 15,000 1.12%
Directors and Executive Officers
as a group (8 persons)......................... 636,060 39.66%
</TABLE>
(1) FMR Corp. ("FMR") is a holding company one of whose principal assets is
the capital stock of Fidelity Management and Research Company
("Fidelity"), the investment advisor to a large number of investment
companies (the "Fidelity Funds"), including the Fidelity Low-Priced
Stock Fund, which owns the shares shown in the table. FMR, through its
control of Fidelity, and the Chairman of FMR each has sole power to
dispose of such shares. Neither FMR nor its principal shareholder has
the sole power to vote or direct the voting of such shares, which power
resides with the Fidelity Funds' Board of Trustees. Fidelity carries
out the voting of the shares under written guidelines established by
the Fidelity Funds' Board of Trustees. All information regarding FMR
was obtained from Amendment No. 5 to Schedule 13G filed by FMR with the
SEC on February 14, 1997.
(2) Franklin Resources, Inc. ("FRI"), a holding company whose subsidiaries
include a bank, broker-dealers, and the investment advisors to a large
number of investment companies (the "Franklin/Templeton Funds"), has
reported that the above shares are held for the benefit of the Franklin
Balance Sheet Investment Fund ("FBSIF"), which has the right to receive
dividends on and the proceeds from the sale of such shares. FRI has
reported that it has the sole power to vote, and shares with Franklin
Advisors, Inc. (the investment advisor to FBSIF), the power to dispose
of such shares. All information regarding FRI was obtained from
Amendment No. 3 to Schedule 13G filed by FRI with the SEC on February
12, 1997.
(3) 800 Rockmead, Three Kingwood Place, Suite 200, Kingwood, TX 77339 is
the address for all directors and executive officers. Actual ownership
of outstanding shares, excluding unissued shares subject to options is
as follows: Mr. Eckley - 219,900 shares, 16.62%; Mr. Carl - 66,500
shares, 5.03%; Mr. Densford - 33,710 shares, 2.55%; Mr. Freedman -
27,000 shares, 2.04%; all directors and executive officers as a group -
355,560 shares, 26.87%.
III-6
<PAGE> 46
Item 12. Certain Relationships and Related Transactions
See Note 1 to the Consolidated Financial Statements for information
regarding the Company's stock repurchase from EDP.
Not Applicable
Item 13. Exhibits and Reports on Form 8-K Sequential
Page No.
(a) Exhibits
(3) (a) Certificate of Incorporation of the Company as currently
in effect. Incorporated by reference to the Registrant's Current
Report on Form 8-K dated June 30, 1992 where the same appeared as
Exhibit 2.
(b) By-Laws of the Company as currently in effect.
Incorporated by reference to the Registrant's Current Report on
Form 8-K, dated June 30, 1992, where the same appeared as Exhibit
3.
(4) (a) Articles Four, Six, Seven, Fourteen, Fifteen, Seventeen
and Twenty of the Company's Certificate of Incorporation and
Article II of the Company's By-Laws. See Exhibits 3(a) and 3(b).
(b) Form of Rights Agreement dated as of September 4, 1990
between the Company's predecessor-in-interest, Enex Resources
Corporation, a Colorado corporation (the "Predecessor") and
American Securities Transfer, Incorporated, as Rights Agent,
which includes as exhibits thereto the Form of Rights Certificate
and the Summary of Rights to Purchase Common Stock. Incorporated
by reference to the Predecessor's Current Report on Form 8-K,
dated as of September 4, 1990, where the same appeared as Exhibit
4.
(9) Not Applicable
(10) (a) Employment Agreement between the Company and Gerald B.
Eckley, as amended May 19, 1992. Incorporated by reference to the
Predecessor's Current Report on Form 8-K dated May 19, 1992,
where the same appeared as Exhibit 2.
(b) Enex Employees Stock Purchase Program. Incorporated by
reference to the Registration Statement on Form S-8 in
Registration Statement No. 33-48644 filed with the Securities and
Exchange Commission on March 22, 1993, where the same appeared as
Exhibit 4.
III-7
<PAGE> 47
(c) 1991 Non-qualified Stock Option Award Program.
Incorporated by reference to the Registration Statement on Form
S-8 in Registration Statement No. 33-60086 filed with the
Securities and Exchange Commission on March 22, 1993, where the
same appeared as Exhibit 4.
(d) 1990 Non-qualified Stock Option Plan. Incorporated by
reference to the Registration Statement on Form S-8 in
Registration Statement No. 33-60084 filed with the Securities and
Exchange Commission on March 22, 1993, where the same appeared as
Exhibit 4.
(e) 1984 Incentive Stock Option Plan and 1979 Employees
Non-qualified Stock Option Plan. Incorporated by reference to the
Registration Statement on Form S-8 in Registration Statement No.
2-93688 filed with the Securities and Exchange Commission on July
1, 1992, where the same appeared as Exhibits 4(a) and 4(b).
(11) Not Applicable
(13) Not Applicable
(18) Not Applicable
(19) Not Applicable
(22) Subsidiaries of Registrant. Incorporated by reference to
Annual Report Form 10-K filed with the Securities and Exchange
Commission on March 16, 1992.
(23) Not Applicable
(24) Not Applicable
(25) Not Applicable
(28) Not Applicable
(29) Not Applicable
(b) Reports on Form 8-K
No current report on Form 8-K was filed by the Company during the last
quarter of the period covered by this report.
III-8
<PAGE> 48
SIGNATURES
In accordance with Rule 12b-15 of the Exchange Act, the registrant files
the amended portions of this report and causes the same to be signed on its
behalf by the undersigned, thereunto duly authorized.
ENEX RESOURCES CORPORATION
November 20, 1998 By: /s/ Frank C. Turner, II
--------------------------
Frank C. Turner, II
Vice President
S-1
