<PAGE>
=================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended ______________
OR
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from April 1, 1995 to December 31, 1995
Commission File Number 0-9204
MINERAL DEVELOPMENT, INC.
(Exact name of Registrant as specified in its charter)
Texas 74-1492779
(State of Incorporation) (I.R.S. Employer
Identification No.)
9400 N. Central Exprwy., Suite 1209
Dallas, Texas 75231
(Address of principal executive offices) (Zip Code)
(214) 368-2084
(Registrant's telephone number,
including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.01 Per Share
(Title of Class)
______________________________
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding twelve (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 ninety (90) days.
YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not 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-K or any amendment of this
Form 10-K. [X]
The number of shares of Common Stock, par value $.01 per
share, of the Registrant outstanding at December 31, 1995, was
3,375,721. The aggregate market value of the voting stock held by
nonaffiliates of the Registrant at December 31, 1995, was $974,970
based on the average of the closing bid and asked prices per share
of the Common Stock on such date.
DOCUMENTS INCORPORATED BY REFERENCE
None
=================================================================
-1-
<PAGE>
MINERAL DEVELOPMENT, INC.
FORM 10-K
FOR THE TRANSITION PERIOD FROM APRIL 1, 1995 TO DECEMBER 31, 1995
PART I
Other than historical and factual statements, the matters and
items discussed in this Annual Report on Form 10-K are forward-
looking statements that involve risks and uncertainties. The
Company's actual results may differ materially from the results
discussed in the forward-looking statements. Certain factors that
could contribute to such differences are discussed in the forward-
looking statements and are summarized in "Management's Discussion
and Analysis of Financial Condition and Results of Operations -
Forward-Looking Statements - Cautionary Statements."
ITEM 1. BUSINESS
General
Mineral Development, Inc., a Texas corporation (the
"Company"), is engaged in the acquisition of, exploration for and
production of oil and natural gas. The Company identifies
producing property acquisition candidates with enhancement
potential such as infield drilling, recompletions, repairs and
equipment changes. The Company focuses on negotiated acquisitions
of properties it can operate thus maintaining the maximum control
of enhancement activities. The Company generates drilling
prospects through its own staff and acquires prospects from
independent geologists and geophysicists, other oil and gas
operators and other third parties. Prospects generated by outside
sources are usually subject to overriding royalties or other
retained interests and may require the payment of cash
consideration greater than that required for prospects generated
internally. The Company continually reviews and evaluates
potential oil and gas prospects. In evaluating prospects, the
Company sometimes obtains engineering and technical assistance from
independent consultants at prevailing industry rates.
The Company's acquisition, exploration, development and
production activities are conducted primarily in Texas, Louisiana
and Illinois. At December 31, 1995, the Company owned interests in
approximately 17,123 gross (4,002 net) acres of developed oil and
gas properties and 5,913 gross (1,075 net) acres of undeveloped oil
and gas properties.
Exploration and Development Activities
Historically, the Company has financed its acquisition,
exploration and development expenditures primarily through promoted
funds from outside partners and internally generated funds. The
Company typically obtains outside participants, generally industry
partners, to drill the prospect or to enter into other types of
sharing arrangements, such as joint ventures and farmout
arrangements, pursuant to which other parties assume the majority
or all of the costs of drilling. The involvement of outside
participants permits the Company to spread its drilling funds over
a larger number of prospects and to reduce the potential amount of
loss on any one prospect. Funds required to be expended by the
Company will generally be proportionately less than the Company's
interest in any production obtained from the wells drilled. From
time to time, the Company may sell interests in, or enter into
sharing arrangements with respect to, drilling prospects in which
the Company has an interest to or with directors, officers,
principal shareholders or other affiliates of the Company, provided
such transactions are on terms and conditions substantially similar
to those offered to nonaffiliated parties. With respect to its
acquisition activities, the Company intends to shift its emphasis
to larger scale acquisitions. Initially, the Company plans to use
a combination of debt and equity financing for larger acquisitions
of producing properties.
The Company's ability to continue to fund its exploration and
development activities depends upon its ability to secure the
necessary financing for such activities. The Company made
exploration and development expenditures of $150,281, $125,247 and
$112,212 during fiscal years ended March 31, 1994 and 1995 and the
nine months ended December 31, 1995, respectively. The Company
made net lease acquisition expenditures of $32,186, $82,743 and
$4,430 during the fiscal years ended March 31, 1994 and 1995 and
the nine months ended December 31, 1995, respectively.
-2-
<PAGE>
Operating Activities
Where possible, the Company prefers to act as operator of the
oil and gas prospects in which it owns an interest. The operator
of an oil and gas property supervises production, maintains
production records, employs field personnel and performs other
functions required in the production and administration of such
property. The fees for such services customarily vary from well to
well, depending on the nature, depth and location of the well being
operated. Generally, the operator of an oil and gas prospect is
determined by such factors as the size of the working interest held
by a participant in the prospect, a participant's knowledge and
experience in the geological area in which the prospect is located
and geographical considerations. At December 31, 1995, the Company
was the operator of 121 gross (87.23 net) wells, which represented
approximately 97% of the net wells in which the Company had an
interest at such date. The remainder of the wells in which the
Company had an interest at such date are operated by third party
operators. The wells that the Company operates are located in
Texas, Illinois and Louisiana. Although the Company elects to
operate and manage most of its properties and drilling activities,
its wells are drilled by independent drilling contractors.
Sales of Developed and Undeveloped Acreage
The Company evaluates properties on an ongoing basis to
determine the economic viability of the property and whether such
property will enhance the objectives of the Company. During the
course of normal business, the Company may dispose of producing
properties and undeveloped acreage if the Company believes that
such sale is in its best interests. In the nine months ended
December 31, 1995, the Company sold a portion of its interest in an
undeveloped lease, which reduced the Company's basis in the lease
by $28,000. In fiscal year ended March 31, 1995, the Company sold
a portion of its interest in an undeveloped lease generating a gain
of $5,400. In fiscal 1994, the Company sold a portion of its
carried interest in a well in Fayette County, Texas, recognizing a
gain of $34,586 and a small interest in a well in Palo Pinto
County, Texas for a gain of $3,194.
Products, Markets and Revenues
Oil and natural gas are the principal products produced by the
Company. The Company does not refine or process the oil and
natural gas that it produces. The Company sells the oil it
produces under short-term contracts at market prices in the areas
in which the producing properties are located, generally at F.O.B.
field prices posted by the principal purchaser of oil in such
areas.
Natural gas produced from the Company's properties is sold
under both short-term and long-term contracts with transmission and
utility companies that have pipelines in the vicinity of the
producing properties or that will construct pipelines to such
properties. The contracts are of a type common within the
industry, and a separate contract is usually negotiated for each
property. Typically, the Company's contracts are made for terms
ranging from day to day up to six months.
The availability of a ready market for oil and gas and the
prices of oil and gas are dependent upon a number of factors that
are beyond the control of the Company. These factors include,
among other things, the level of domestic production and economic
activity generally, the availability of imported oil and gas,
actions taken by foreign oil producing nations, the availability of
gas pipelines with adequate capacity and other transportation
facilities, the availability and marketing of other competitive
fuels, fluctuating and seasonal demand for oil, gas and refined
products and the extent of governmental regulation and taxation
(under both present and future legislation) of the production,
refining, transportation, pricing, use and allocation of oil,
natural gas, refined products and substitute fuels. Accordingly,
in view of the many uncertainties affecting the supply and demand
for crude oil, natural gas and refined petroleum products, it is
not possible to predict accurately the prices or marketability of
the oil and gas from any producing well in which the Company has or
may acquire an interest.
Oil prices have been subject to significant fluctuations over
the past decade. Levels of production maintained by the
Organization of Petroleum Exporting Countries ("OPEC") member
nations and other major oil producing countries are expected to
continue to be a major determinant of crude oil price movements in
the future. As a result, future oil price movements cannot be
predicted with any certainty. Similarly, during the past several
years, the market price for natural gas has been subject to
significant fluctuations on a monthly basis as well as from year to
year. These frequent changes in the market price make it
impossible for the Company to predict gas price movements with any
certainty.
-3-
<PAGE>
The Company cannot provide assurance that it will be able to
market all oil or gas that the Company produces or, if such oil or
gas can be marketed, that favorable price and contractual terms can
be negotiated. Changes in oil and natural gas prices may
significantly affect the revenues and cash flow of the Company and
the value of its oil and gas properties. Further, significant
declines in the prices of oil and natural gas may have a material
adverse effect on the business and financial condition of the
Company. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Results of Operations."
In certain areas in which the Company engages in gas
exploration and production activities, the supply of natural gas
available for delivery from time to time exceeds the demand.
During such times, companies purchasing gas in such areas reduce
the amount of gas that they will purchase or "take." If buyers
cannot be readily located for newly discovered gas reserves, newly
completed gas wells may be shut-in for various periods of time. As
a result, the over-supply of natural gas in certain areas may cause
the Company to experience "take" problems or may adversely affect
the Company's ability to obtain contracts to market gas discovered
in wells in which the Company owns an interest.
The following table sets forth the amount of the Company's oil
sales, gas sales and the percent of oil and gas sales to total
revenues for the periods indicated:
<TABLE>
<CAPTION>
Percent of Oil/Gas
Sales to Total
Revenues
Total ------------------
Period Ended Oil Sales Gas Sales Oil/Gas Sales (Oil) (Gas)
- ------------ --------- --------- ------------- ----- -----
<S> <C> <C> <C> <C> <C>
Nine Months Ended December 31, 1995 $305,569 $254,275 $559,844 41 34
Nine Months Ended December 31, 1994 246,426 245,117 491,543 36 36
Year Ended March 31, 1995 324,253 301,537 625,790 37 35
Year Ended March 31, 1994 404,814 310,262 715,076 39 30
</TABLE>
Delivery Commitments
The Company is not presently obligated to provide a fixed and
determinable quantity of oil or gas under any existing contract or
agreement.
Customers
During the nine months ended December 31, 1995, sales of oil
and gas to two purchasers, Scurlock-Permian Corporation and Delhi
Gas Marketing Corp. accounted for 17% and 11%, respectively, of the
Company's total revenues. During the fiscal year ended March 31,
1995, sales to Pride Pipeline Company and Delhi Gas Marketing Corp.
accounted for 15% and 14%, respectively, of the Company's total
revenues. During fiscal year ended March 31, 1994, sales to only
one purchaser, Pride Pipeline Company with sales of 13% accounted
for 10% or more of the Company's total revenues. Although the loss
of any one of the Company's oil and gas purchasers could
temporarily cease or delay the Company's production and sale of its
oil and gas in the purchasers' particular service area, the Company
believes it would be able, under current economic circumstances, to
contract with other purchasers for its oil and gas production.
Competition
The oil and gas industry is highly competitive. The Company
encounters strong competition from other independent operators and
from major oil companies in acquiring properties suitable for
exploration, in contracting for drilling equipment and in securing
trained personnel. Many of these competitors have financial
resources and staffs substantially larger than those available to
the Company.
Exploration for and production of oil and gas is also affected
by competition for drilling rigs and the availability of tubular
goods and certain other equipment. While the oil and gas industry
has experienced shortages of drilling rigs and equipment, pipe and
personnel in the past, the Company is not presently experiencing
any shortages and does not foresee any such shortages in the near
future. The Company is unable to predict how long current market
conditions will continue.
-4-
<PAGE>
Competition for attractive oil and gas producing properties,
undeveloped leases and drilling rights is also strong, and the
Company cannot provide assurance that it will be able to compete
satisfactorily in the acquisition of such properties. Many major
oil companies have publicly indicated their decisions to
concentrate on overseas activities and have been actively marketing
certain of their existing producing properties for sale to
independent producers.
Risks
The Company's operations are subject to all of the risks
normally incident to the exploration for and production of oil and
gas, including blowouts, cratering, pollution and fires, each of
which could result in damage to or destruction of oil and gas wells
or formations or production facilities or damage to persons and
property. As is common in the oil and gas industry, the Company is
not fully insured against these risks because either insurance is
not available or because the Company has elected not to procure
insurance due to prohibitive premium costs. The occurrence of such
an event not fully insured against could have a material adverse
effect on the Company's financial position.
The Company's oil and gas activities involve in part
exploratory drilling, which carries a significant risk that no
commercial oil or gas production will be obtained. The cost of
drilling, completing and operating wells is often uncertain.
Further, drilling may be curtailed or delayed as a result of many
factors, including title problems, weather conditions, delivery
delays, shortages of pipe and equipment and the unavailability of
drilling rigs.
Employees
As of April 1, 1996, the Company employed six persons of which
three were involved in field operations and three were engaged in
office and administrative activities. None of the Company's
employees are represented by unions or covered by collective
bargaining agreements. To date, the Company has not experienced
any strikes or work stoppages due to labor problems and considers
its relations with its employees to be good. The Company also
utilizes the services of independent consultants on a contract
basis.
Regulation
General. The Company's operations are affected from time to
time in varying degrees by political developments and federal and
state laws and regulations. In particular, oil and gas production
operations and economics are or have been affected by price
control, tax and other laws relating to the oil and gas industry,
by changes in such laws and by changing administrative regulations.
Legislation affecting the oil and gas industry is under
constant review for amendment or expansion, frequently increasing
the regulatory burden. Also, numerous departments and agencies,
both federal and state, are authorized by statute to issue and have
issued rules and regulations binding on the oil and gas industry
and its individual members, compliance with which is often
difficult and costly and certain of which carry substantial
penalties for the failure to comply. The Company cannot predict
how existing regulations may be interpreted by enforcement agencies
or the courts, nor whether amendments or additional regulations
will be adopted, nor what effect such changes may have on the
Company's business or financial condition.
Federal Taxation. The federal government is continually
proposing tax initiatives that may effect the oil and gas industry,
including the Company. Due to the preliminary nature of these
proposals, the Company is unable to determine what effect, if any,
the proposals would have on product demand or the Company's results
of operations.
State Regulation. The various states in which the Company
conducts activities regulate the drilling, operation and production
of oil and gas wells, such as the method of developing new fields,
spacing of wells, the prevention and clean-up of pollution, and
maximum daily production allowables based on market demand and
conservation considerations.
Environmental Regulation. Various federal, state and local
laws and regulations covering the discharge of materials into the
environment, or otherwise relating to the protection of the
environment, directly impact oil and gas exploration, development
and production operations, and consequently may impact the
Company's operations and costs. The discharge of oil, gas or other
pollutants into the air, soil or water may give rise to claims
against the Company brought by
-5-
<PAGE>
either the government or third parties requiring the Company to
incur costs to remediate the discharge. Pollution and similar
environmental risks generally are not fully insurable. The Company
does not believe that its environmental risks are materially
different from those of comparable companies in the oil and gas
industry. Inasmuch as such laws and regulations are constantly
revised, the Company is unable to predict the ultimate cost it may
incur as a result of compliance with present and future
environmental laws and regulations.
Other Proposed Legislation. In the past, Congress has been
very active in the area of natural gas regulation. Legislative
proposals are pending in various states which, if enacted, could
significantly affect the petroleum industry. The Company cannot
predict which proposals, if any, may actually be enacted by
Congress or any of the state legislatures, and what impact, if any,
such proposals may have on the Company's operations.
ITEM 2. PROPERTIES
Location and General Character
The Company leases approximately 3,485 square feet of office
space in Dallas, Texas, for its corporate offices. The lease
expires November 30, 1996, and requires a monthly rental payment of
approximately $3,125 plus the reimbursement of certain expenses.
The Company considers this space adequate for its present needs.
The Company also has a small field office and yard in Pecos County,
Texas.
The Company's principal producing areas are in Texas, Illinois
and Louisiana. The Company's acquisition and exploration
activities are conducted principally in Texas and Louisiana.
Title to Properties
As is common industry practice, little or no investigation of
title is made at the time of acquisition of undeveloped properties,
other than a preliminary review of local mineral records. Title
investigations are made, and in most cases, a title opinion of
local counsel is obtained before commencement of drilling
operations. The Company believes that the methods it utilizes for
investigating title prior to the acquisition of any properties are
consistent with practices customary in the oil and gas industry and
that such practices are adequately designed to enable the Company
to acquire good title to such properties. Some title risks,
however, cannot be avoided, despite the use of customary industry
practices.
The Company's properties are generally subject to customary
royalty and overriding royalty interests, liens incident to
operating agreements, liens for current taxes and other burdens and
minor encumbrances, easements and restrictions, and may be
mortgaged to secure indebtedness of the Company. The Company
believes that none of these burdens either materially detract from
the value of such properties or materially interfere with their use
in the operation of the Company's business.
Oil and Gas Reserves
At December 31, 1995, the Company's oil and gas reserves
included direct working interests in 157 wells in the states of
Texas, Illinois, North Dakota, Kansas, Oklahoma and Louisiana, as
well as overriding royalties in an additional 11 wells in Texas and
Michigan. The Company has no reserves offshore or outside of the
United States. At December 31, 1995, approximately 71% of the
present value of the estimated future net revenues attributable to
the Company's properties were attributable to Proved Developed
Reserves and approximately 29% was attributable to Proved
Undeveloped Reserves. In addition, approximately 15% of the total
Proved Reserves were attributable to oil and approximately 85% to
gas, based on six mcf of gas being equivalent to one barrel of oil.
The following table summarizes the Company's proved reserves
at December 31, 1995, and was prepared in accordance with the rules
and regulations of the Securities and Exchange Commission (the
"Commission"):
-6-
<PAGE>
PROVED RESERVES
At December 31, 1995
<TABLE>
<S> <S>
Oil and Liquids (Bbls)
Proved Developed 140,870
Proved Undeveloped 7,116
---------
Total 147,986
=========
Natural Gas (Mcf)
Proved Developed 2,817,700
Proved Undeveloped 2,139,184
---------
Total 4,956,884
=========
</TABLE>
During the nine months ended December 31, 1995, the Company
expended approximately $47,000 to acquire an additional 48% working
interest in, and became the operator of, an existing gas well in
DeSoto Parish, Louisiana, resulting in the Company owning 51% a
working interest in the well and related acreage. The reserve
estimates prepared as of December 31, 1995, indicate that the
present value of the estimated future net revenues, discounted at
10% per annum, attributable to the Company's interest in this
property is approximately $1,550,000 at such date. All of this
value is classified as proved reserves, divided almost equally
between proved developed (behind pipe) and proved undeveloped.
These reserves are in a proved nonproducing category, and there is
risk associated with recovery of these reserves. In addition, the
Company must incur certain costs and undertake certain risks
associated with drilling and workover operations to recover these
reserves.
The reserve estimates presented as of December 31, 1995 have
been prepared by Lee Keeling and Associates, Inc., independent
petroleum engineers, Tulsa, Oklahoma. Estimates of oil and gas
reserves are, of necessity, projections based on engineering data
and, thus, are forward-looking in nature. However, because of the
uncertainties inherent in the interpretation of such data, the
Company cannot insure that the reserves set forth herein will
ultimately be realized and the actual results could differ
materially. See "Supplementary Oil and Gas Disclosures" included
in "Item 8. Financial Statements and Supplementary Data" for
additional information regarding the Company's oil and gas
reserves, including the present value of future net revenues.
Previous reserve estimates for other periods reported herein were
prepared by Milmac Operating Company, independent petroleum
engineers, Lubbock, Texas.
Reserves Reported to Other Agencies
Estimates of oil and gas reserves have not been filed with or
included in reports to any federal authority or agency other than
the Commission.
Production
The following table summarizes for the periods indicated, the
Company's revenues, net production of oil and gas sold (including
condensate and natural gas liquids) and the average sales price per
unit of oil (Bbl) and gas (Mcf):
<TABLE>
<CAPTION>
Nine Months Fiscal Year
Ended December 31, Ended March 31,
------------------ ---------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Oil and Condensate:
Revenue $305,569 $246,426 $324,253 $404,814
Production sold (Bbls) 18,526 16,085 20,733 27,135
Average sales price per Bbl. $ 16.49 $ 15.32 $ 15.64 $ 14.92
-7-
<PAGE>
Natural Gas:
Revenues $254,275 $245,117 $301,537 $310,262
Production sold (Mcf) 181,121 164,352 210,815 153,809
Average sales price per Mcf $ 1.40 $ 1.49 $ 1.43 $ 2.02
</TABLE>
Total oil and gas revenues for the nine months ended December
31, 1995 increased 14% over the year earlier period due to
increased production of oil and gas and, to a lesser extent, an 8%
increase in the price of oil being offset by a 6% decrease in the
price of gas. Total oil and gas revenues for the fiscal year ended
March 31, 1995 decreased 13% from fiscal 1994 due to lower
production of oil and a significant decrease in the price of gas.
The Company's net production reported in the preceding table
only includes production that is owned by the Company and produced
to its oil and gas interest, less royalties. Oil production for
the nine months ended December 31, 1995 was 15% higher than the
nine month period ended December 31, 1994 and gas production was
10% higher. Oil production for fiscal year ended March 31, 1995
was 24% lower than fiscal 1994, but gas production was 34% higher.
On the basis of 6 mcf of gas being equivalent to 1 barrel of oil,
total production for the nine month period ended December 31, 1995
increased 12% from the nine month period ended December 31, 1994.
The average production (lifting) costs per barrel-equivalent
(gas production being converted to barrel-equivalents at 6,000
cubic feet per barrel of oil) for the fiscal years ended March 31,
1994 and 1995 and for the nine months ended December 31, 1995 were,
$8.70, $7.22 and $6.85, respectively. Depreciation, depletion and
amortization expense for the fiscal years ended March 31, 1994 and
1995 and for the nine months ended December 31, 1995 were $2.08,
$1.91 and $4.80, respectively, per barrel of oil and gas equivalent
produced.
Productive Wells
The following table sets forth the Company's interest in
productive wells (producing wells and wells capable of production)
at December 31, 1995. The total gross oil and gas wells does not
include any multiple completions. At December 31, 1995, the
Company did not own an interest in any well that was being
completed.
<TABLE>
<CAPTION>
Gross Wells(1) Net Wells(2)
-------------- ------------
(Oil) (Gas) (Total) (Oil) (Gas) (Total)
----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C>
Illinois 13 0 13 4.11 0 4.11
Kansas 0 1 1 0 .08 .08
Louisiana 0 2 2 0 .96 .96
North Dakota 2 0 2 .08 0 .08
Oklahoma 1 2 3 .02 .08 .10
Texas 118 18 136 79.46 5.19 84.65
--- -- --- ----- ---- -----
Total 134 23 157 83.67 6.31 89.98
=== == === ===== ==== =====
<FN>
- ---------------------
(1) A gross well is a well in which a working interest is owned.
The number of gross wells is the total number of wells in which a
working interest is owned. Wells in which only an overriding
royalty interest is owned are excluded from this presentation.
(2) A net well is deemed to exist when the sum of fractional
ownership working interests in gross wells equals one. The number
of net wells is the sum of the fractional working interests owned
in gross wells expressed as whole numbers and fractions thereof.
</FN>
</TABLE>
Developed Acreage
The following table sets forth the Company's interest in
developed acreage (acreage spaced or assignable to productive
wells) at December 31, 1995:
-8-
<PAGE>
<TABLE>
<CAPTION>
Developed Acreage
-----------------
Gross (1) Net (2)
--------- -------
<S> <C> <C>
Illinois 630 98
Kansas 640 50
Louisiana 1,280 615
North Dakota 320 12
Oklahoma 1,440 32
Texas 12,813 3,195
------ -----
Total 17,123 4,002
====== =====
<FN>
- ----------------------
(1) A gross acre is an acre in which a working interest is owned.
(2) A net acre is deemed to exist when the sum of fractional
ownership working interests in gross acres equals one. The total
of net acres is the sum of the fractional working interests owned
in gross acres expressed as whole numbers and fractions thereof.
</FN>
</TABLE>
Undeveloped Acreage
In addition to its developed oil and gas properties, the
Company held interests in 5,913 gross undeveloped acres (1,075 net
acres) at December 31, 1995. The following table shows the
location of the Company's undeveloped acreage:
<TABLE>
<CAPTION>
Undeveloped Acreage
-------------------
Gross Net
----- ---
<S> <C> <C>
Illinois 412 106
Texas 5,501 969
----- -----
Total 5,913 1,075
===== =====
</TABLE>
The primary terms of the oil and gas leases covering the
majority of the Company's undeveloped acreage expire at various
dates, generally ranging from one to five years. The Company can
retain its interest in undeveloped acreage by drilling activity
that establishes commercial reserves sufficient to maintain the
lease. Certain of the Company's undeveloped acreage in Illinois
and Texas is being "held by production," for which expiration will
not occur until production ceases from all wells on the particular
leases. As defined by the Commission, undeveloped acreage is
considered to be lease acreage on which wells have not been drilled
or completed to a point that would permit the production of
commercial quantities of oil and gas regardless of whether such
acreage contains proved reserves.
Drilling Activities
With respect to its drilling operations, the Company plans to
concentrate on lower risk development-type properties, generally
consisting of drilling to reservoirs from which production is or
formerly was being obtained. The drilling of development wells is
subject to the normal risk of dry holes, or a failure to produce
oil and gas in commercial quantities. The degree of risk varies
depending, among other things, on the distance between the well and
the nearest producing well, other available geological information
and the geological features of the area. In the past, the Company
has drilled higher risk exploratory type wells, primarily in
geological basins with relatively high levels of drilling density
and where adequate subsurface information in the form of well logs
and seismic data is generally available to evaluate potential
hydrocarbon accumulations. All drilling activities are subject to
the risk of encountering unusual or unexpected formations and
pressures and other conditions that may result in financial losses
or liabilities to third parties or governmental entities, some of
which may not be covered by insurance. The number and type of
wells drilled by the Company will vary depending on the amount of
funds available for drilling, the cost of each well, the size of
the fractional working interests acquired by the Company in each
well and the estimated recoverable reserves attributable to each
well.
-9-
<PAGE>
The following table summarizes the Company's approximate gross
and net interests in the exploratory and development wells drilled
during the periods indicated:
<TABLE>
<CAPTION>
EXPLORATORY WELLS
-----------------
Gross Net
Transition Period ----- ---
or Fiscal Year Productive Dry Total Productive Dry Total
- ----------------- ---------- --- ----- ---------- --- -----
<S> <C> <C> <C> <C> <C> <C>
December 31, 1995 0 2 2 .00 .13 .13
March 31, 1995 0 1 1 .00 .10 .10
March 31, 1994 1 5 6 .04 .22 .26
DEVELOPMENT WELLS
-----------------
Gross Net
Transition Period ----- ---
or Fiscal Year Productive Dry Total Productive Dry Total
- ----------------- ---------- --- ----- ---------- --- -----
December 31, 1995 1 0 1 .11 .00 .11
March 31, 1995 2 0 2 .26 .00 .26
March 31, 1994 1 0 1 .03 .00 .03
</TABLE>
For purposes of the foregoing table, a dry well (hole) is an
exploratory or development well found to be incapable of producing
either oil or gas in sufficient quantities to justify completion of
an oil or gas well. A productive well is an exploratory or a
development well that is not a dry hole. The number of wells
drilled refers to the number of wells (holes) completed at any time
during the fiscal year, regardless of when drilling was initiated.
The term "completed" refers to the installation of permanent
equipment for the production of oil or gas, or, in the case of a
dry hole, to the reporting of abandonment to the appropriate
agency. All drilling activities performed during the nine months
ended December 31, 1995 were conducted in the State of Texas.
Present Activities
At April 1, 1996, the Company was not participating in the
drilling of any development or exploratory wells.
ITEM 3. LEGAL PROCEEDINGS
The Company is not presently party to, nor is any of its
property the subject of, any material pending legal proceedings
other than routine litigation incidental to the Company's business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the last three months of the transition period ended
December 31, 1995, no matter was submitted by the Company to a vote
of its shareholders through the solicitation of proxies or
otherwise.
-10-
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
Market Information
During the past few years, the Company has not met certain of
the criteria required for listing on The Nasdaq Stock Market's
National Market or Small Cap Market. Since October 1993, certain
quotations (high and low bid prices) for the outstanding shares of
common stock, par value $0.01 per share (the "Common Stock"), have
been published on the OTC Bulletin Board under the symbol "MDVP."
Their quotations for the 1994 and 1995 calendar years and for 1996
through April 1, 1996 were as follows:
<TABLE>
<CAPTION>
Calendar Years High Low
-------------- ---- ---
<S> <C> <C>
1994
----
First Quarter $ 3/8 $ 1/4
Second Quarter 5/16 3/16
Third Quarter 1/2 3/16
Fourth Quarter 1/2 3/8
1995
----
First Quarter $ 5/8 $ 3/8
Second Quarter 5/8 1/4
Third Quarter 1/2 1/4
Fourth Quarter 1/2 5/16
1996
----
First Quarter
(through April 1) $ 1/2 $5/16
</TABLE>
The above quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commissions and may not necessarily
represent actual transactions.
The Company is attempting to comply with certain listing
criteria, including minimum equity, share price, public float and
market maker requirements and intends to reapply for inclusion of
its Common Stock on The Nasdaq Stock Market's National Market or
Small Cap Market when the Company is able to satisfy such
requirements. The Company cannot insure that it will be successful
in any reapplication to have the Common Stock quoted on The Nasdaq
Stock Market's National Market or Small Cap Market. See "Item 7.
Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources."
Shareholders
According to the records of the Company's transfer agent,
there were 1,770 holders of record of the Common Stock at April 1,
1996.
Dividends
The Company has not paid any cash dividends on its Common
Stock, and does not anticipate that dividend payments will be made
in the foreseeable future. The Board of Directors of the Company
presently plans to retain the Company's earnings, if any, to
finance the development and expansion of the Company's operations.
Future dividend policy is subject to the discretion of the Board of
Directors and will depend on a number of factors, including future
earnings, capital requirements and the financial condition of the
Company.
-11-
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The comparative selected financial data of the Company is
presented for the transition period ended December 31, 1995 and the
fiscal years ended March 31, 1992, 1993, 1994 and 1995. The
information should be read in conjunction with "Item 7.
Management's Discussion and Analysis of Financial Condition and
Result of Operations" and the Company's Financial Statements and
accompanying notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
Fiscal Year Ended March 31,
Nine Months Ended ---------------------------
December 31, 1995 1995 1994 1993 1992
----------------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operations
- ----------
Revenues $ 751,384 $ 866,411 $1,040,829 $1,141,627 $ 968,298
Net income (loss) before
extraordinary item (343,714) (167,990) 45,738 120,337 (33,782)
Extraordinary items(1) 0 0 0 49,477 0
Net income (loss) (343,714) (167,990) 45,738 169,814 (33,782)
Net income (loss) per share
before extraordinary item(2) (.10) (.05) .02 .04 (.01)
Extraordinary item per share(1)(2) 0 0 0 .02 0
Net income (loss) per share (2)(3) (.10) (.05) .02 .06 (.01)
Balance Sheet
- -------------
Current assets $ 581,524 $ 577,388 $ 455,945 $ 419,447 $ 391,786
Current liabilities 861,414 652,434 418,221 364,140 445,957
Working capital (deficit) (279,890) (75,046) 37,724 55,307 (54,171)
Total assets 1,530,687 1,641,548 1,453,450 1,267,016 1,169,642
Long-term debt 39,548 15,675 18,800 18,004 8,627
Shareholders' equity 629,725 973,439 1,016,429 884,872 715,058
Current ratio .68 to 1 .88 to 1 1.09 to 1 1.15 to 1 .88 to 1
<FN>
- ---------------------
(1) The extraordinary gain in fiscal 1993 was due to the
utilization of the Company's net operating loss carryforward.
(2) Per share data has been restated to reflect the l-for-10
reverse stock split effective March 2, 1992.
(3) The Company has not declared nor paid any dividends during any
of the periods presented.
</FN>
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Comparison of Nine Months Ended December 31, 1995 and 1994
(Unaudited). On February 13, 1996, the Company changed its fiscal
year end from March 31 to December 31. Accordingly, the following
comparison is for the nine month transition period ended December
31, 1995 and the nine month period ended December 31, 1994.
The net loss for the nine months ended December 31, 1995 was
$343,714, or $.10 per share, compared to a net loss of $59,705, or
$.02 per share, in the prior nine month period. This difference of
$284,009 was primarily the result of an increase in expenses, as
discussed below.
Oil and gas sales increased $68,301 to $559,844 for the nine
months ended December 31, 1995, from $491,543 in the prior nine
month period, a 14% increase. Oil production and gas production
for the nine months ended December 31, 1995 increased 15% and 10%,
respectively, from the prior nine month period. These increases
were primarily attributable to the production from several
successful workovers and newly completed wells overshadowing the
continued
-12-
<PAGE>
depletion of existing properties. Oil prices and gas prices for
the nine months ended December 31, 1995 were 8% higher and 6%
lower, respectively, than such prices in the comparable prior nine
month period.
Management fees and other income increased $14,403, or 8%, to
$191,540 for the nine months ended December 31, 1995 versus
$177,137 in the nine months ended December 31, 1994. Management
fees and other income primarily include overhead fees, well
supervision and interest income. The increase was due to a
slightly higher level of operated drilling and maintenance
activities.
The Company's costs and expenses increased $355,505, or 48%,
from $739,593 for the nine months ended December 31, 1994 to
$1,095,098 for the nine months ended December 31, 1995. This
increase was primarily due to a $166,840 increase in depreciation,
depletion and amortization, and to a $129,453 increase in general
and administrative expenses. Depreciation, depletion and
amortization expenses were $233,958 and $67,118, respectively, for
the nine month periods ended December 31, 1995 and 1994. This
249% increase was attributable to the significant depletion expense
taken on non-producing reserves. General and administrative
expenses were $480,446 and $350,993, respectively, for the nine
months ended December 31, 1995 and 1994, respectively. The 37%
increase between the nine month periods is the result of the
current period including nine months of expenses related to the
employment of a new Chairman of the Board, President and Chief
Executive Officer versus only four months of expenses reflected in
the previous nine month period.
Comparison of Fiscal Years Ended March 31, 1995 and 1994
The net loss for fiscal year ended March 31, 1995 was
$167,990, $0.05 per share, compared to net income of $45,738, $0.02
per share in fiscal 1994. This difference of $213,728 was
primarily the result of a decrease in revenue, as discussed below.
Oil and gas sales decreased $89,286, or 12.5%, to $625,790 in
fiscal year ended March 31, 1995 from $715,076 in fiscal 1994.
Fiscal year ended March 31, 1995 oil production was 24% lower than
1994 as the Company experienced continued depletion of current
properties with new wells being added only at year end. However,
gas production was 34% higher reflecting the acquisition of new
interests and one highly successful workover. On the basis of 6
mcf of gas being equivalent to 1 barrel of oil, total fiscal 1995
production increased 6%. The decline in total oil and gas revenues
of 12.5% was due to a 5% increase in oil prices being more than
offset by a 29% decrease in gas prices. Had oil and gas prices
remained unchanged from fiscal 1994 to fiscal 1995, oil and gas
revenues would have increased 3%.
Management fees and other income decreased $62,526, or 21%, to
$232,940 in fiscal 1995. The decrease was due to a combination of
a lower level of operated drilling and repair activities and
slightly fewer wells operated on average for fiscal 1995 than for
fiscal 1994.
The Company's costs and expenses increased $39,310, or 4%.
Most of the $121,179 increase in general and administrative expense
was offset by reductions in oil and gas production costs and
dryhole and abandonment costs. The increased general and
administrative expense was primarily due to the hiring of a new
Chairman of the Board, President and Chief Executive Officer in
August 1994.
Comparison of Fiscal Years Ended March 31, 1994 and 1993
The net income for fiscal 1994 was $45,738, $0.02 per share,
compared to $169,814, $0.06 per share, in fiscal 1993. The
$124,076 difference was primarily the result of a decrease in oil
and gas revenue, as discussed below.
Oil and gas sales decreased $115,072, or 14%, to $715,076 in
fiscal 1994 from $830,148 in fiscal 1993 due mostly to the
significant decrease in the average oil price per barrel received
by the Company in fiscal 1994 and the normal declines from
depletion, dispositions and abandonments, which more than offset
revenues received from the acquisition of interests in producing
wells and successful workovers on certain of the Company's wells
and the increase in the average sales price per Mcf ($2.02 in
fiscal 1994 compared to $1.78 in fiscal 1993). The lower price per
barrel in fiscal 1994 ($14.92) compared to fiscal 1993 ($19.18) was
due to a temporary cyclical fluctuation, which as of the date of
this report has been almost completely reversed.
-13-
<PAGE>
Management fees and other income decreased $7,781, or only
2.6%, from $303,247 in fiscal 1993 to $295,466 in fiscal 1994.
Management fees and other income primarily include overhead fees,
well supervision and interest income. Gain on disposition of
property and equipment was $30,287 for fiscal 1994 compared to
$8,232 for fiscal 1993. These gains or losses are entirely
dependent upon the frequency and magnitude of sales of properties
that management determines to sell and the disposition and book
value of properties plugged or otherwise disposed.
The Company's costs and expenses increased by $23,278, or 2%,
from $971,813 in fiscal 1993 to $995,091 in fiscal 1994. Oil and
gas production costs increased $8,983, or 2%, to $458,891 in fiscal
1994 from $449,908 in fiscal 1993 due to the additional costs
related to the acquired interests in producing wells, which more
than offset the cost savings efforts during the year. Dry hole and
abandonment costs increased to $44,141 in fiscal 1994 from $36,040
in fiscal 1993. Changes in this item are due to the timing and
frequency of wells and/or acreage that are drilled and/or abandoned
during any particular year. Depreciation, depletion and
amortization decreased $30,538, or 22% from $140,350 in fiscal 1993
to $109,812 in fiscal 1994 as a result of a large write-down on
several properties for book purposes in fiscal 1993 as well as a
decrease in oil production volumes. General and administrative
costs were $377,536 for 1994 as compared to $343,341 in 1993, an
increase of $34,195, or 10%, due to relatively small increases in
a variety of items.
For the fiscal year ended March 31, 1994, the Company utilized
its net operating loss carryforward to offset the charge for
federal income tax, and as a result, recorded a $6,861 benefit.
Liquidity and Capital Resources
The Company's working capital at December 31, 1995 was a
negative $279,890 as compared to a negative $75,046 at March 31,
1995. This $204,844 decrease resulted from the utilization of
Company funds for property acquisitions, well workovers and capital
expenditures on new wells and also from increased general and
administrative expenses as discussed above. Historically, the
Company has funded its oil and gas activities through cash flow
from operations, bank borrowings, equity capital from private sales
of stock and agreements with industry participants.
The Company's increase in cash of $75,057 for the nine months
ended December 31, 1995, was due to net borrowings of $181,054
being partially offset by net cash used for property and equipment
acquisitions of $101,822 and net cash used in operations of $4,175.
Cash decreased $43,157 for the nine months ended December 31, 1994,
due to $125,000 in proceeds from Common Stock issued being more
than offset by cash used in operations of $27,421, net property and
equipment acquisitions of $119,534 and repayments of long-term debt
of $21,202. For the fiscal years ended March 31, 1995 and 1994,
cash increased $62,465 and $74,348, respectively, due to cash flow
from operations and Common Stock issuances exceeding cash used for
net property and equipment acquisitions and debt repayments.
At December 31, 1995, the Company had a short-term bank note
payable in the amount of $200,000 and long-term debt (excluding
current portion) of approximately $40,000. At the date of this
report, the short-term note was paid in full through proceeds
received upon the exercise of an outstanding stock option described
below. At the date of this report, the Company did not have any
significant financing facility.
On March 29, 1996, William R. Granberry, a director of the
Company and former Chairman of the Board, President and Chief
Executive Officer, exercised his stock option and purchased 600,000
shares of the Company's Common Stock at $.375 per share, thus
generating $225,000 in cash for the Company. Proceeds were
primarily used to pay off the short-term bank note mentioned above.
During the fiscal year ended March 31, 1995, the Company issued
300,000 shares of Common Stock to two directors, David N.
Fitzgerald and William R. Granberry, resulting in $125,000 of new
capital.
Management is of the opinion that the Company's cash flow and
funds from the sale of additional equity capital will be adequate
to meet its current obligations as well as fund additional property
acquisitions, new projects, and generation and/or participation in
new drilling and recompletion work.
The Company has announced its intention to hold its annual
meeting of shareholders in June 1996, at which meeting the
shareholders will vote on proposals to elect a new slate of
directors, to change the name of the Company and to effect a one
for five reverse stock split of the Common Stock. The Company also
expressed its intention to file a Registration Statement with the
Commission relating to the public offering of up to 5,000,000 post-
split shares of the Common Stock. The proceeds of this offering,
if successful, would be used for the acquisition of producing oil
and gas properties as well
-14-
<PAGE>
as further development activities in any acquired properties. The
timing and size of any acquisition and the associated capital
commitments are unpredictable. Proceeds of the contemplated
offering would also assist the Company in meeting certain Nasdaq
listing requirements. There is no assurance that the Company will
be successful in registering its Common Stock for sale or in
selling all or any portion of the Common Stock offered. The
offering, if made, will be made only by means of a prospectus.
In anticipation of its proposed equity offering, the Company
has agreed to employ Charles W. Gleeson as President and Chief
Executive Officer effective June 1, 1996, provided the proposed
offering is successfully completed.
Inflation and Changing Prices
The impact of inflation, as always, is difficult to assess.
During the three fiscal years ended March 31, 1995 and the nine
months ended December 31, 1995, the oil and gas industry remained
depressed. As a result, the Company experienced continued weakness
in demand and in prices received for its oil and gas production.
The general softening of the market has; however, also reduced the
cost of labor, materials, contract services and other operating
costs. The Company cannot anticipate whether the present trend of
low inflation will remain; however, a sudden increase in inflation
and/or an increase in operating costs coupled with a continuation
of low oil prices could have an adverse effect on the operations of
the Company.
Forward-Looking Information - Cautionary Statements
Other than the historical and factual matters set forth
herein, the matters and items set forth in this report are forward-
looking statements that involve risks and uncertainties. The
Company's actual results may differ materially from the results
discussed in the forward-looking statements. Factors that could
cause or contribute to such differences include, but are not
limited to, the following:
Certain Industry and Marketing Risks. The Company's
operations are subject to the risks and uncertainties associated
with drilling for, and production and transport of, oil and gas.
The Company must incur significant expenditures for the
identification and acquisition of properties and for the drilling
and completion of wells. Drilling activities are subject to
numerous risks, including the risk that no commercial productive
oil or gas reservoirs will be encountered. The Company's
operations may be materially curtailed, delayed or cancelled as a
result of numerous factors, including the presence of unanticipated
pressure or irregularities in formations, accidents, title
problems, weather conditions, compliance with governmental
requirements and shortages or delays in the delivery of equipment.
The Company's prospects for future growth and profitability will
depend predominately on its ability to replace present reserves
through acquisition as well as its ability to successfully develop
additional reserves. The Company's ability to market its oil and
gas production is dependent upon the availability and capacity of
oil and gas gathering systems and pipelines. Federal and state
regulation of oil and gas production and transportation, general
economic conditions, changes in supply and in demand all could
materially adversely affect the Company's ability to market its oil
and gas production.
Uncertainty of Estimates of Oil and Gas Reserves. There are
numerous uncertainties inherent in estimating quantities of proved
oil and gas reserves, including many factors beyond the control of
the Company. This report contains an estimate of the Company's
proved oil and gas reserves and the estimated future net revenue
therefrom based upon reports of the Company's independent petroleum
engineers. Such reports rely upon various assumptions, including
assumptions required by the Commission as to constant gas and oil
prices, drilling and operating expenses, capital expenditures,
taxes and availability of funds. The process of estimating gas and
oil reserves is complex, requiring significant decisions and
assumptions in the evaluation of available geological, engineering
and economic data for each reservoir. As a result, such estimates
are inherently an imprecise evaluation of reserve quantities or the
future net revenue therefrom. Actual future production, revenue,
taxes, development expenditures, operating expenses and quantities
of recoverable gas and oil reserves may vary substantially from
those assumed in the estimate. Any significant variance in these
assumptions could materially affect the estimated quantity and
value of reserves set forth in this report. In addition, the
Company's reserves may be subject to downward or upward revision,
based upon production history, results of future exploration and
development, prevailing gas and oil prices and other factors.
-15-
<PAGE>
Development of Additional Reserves. The Company's future
success, as is generally the case in the industry, depends upon its
ability to find, develop and acquire additional gas and oil
reserves that are economically recoverable. Except to the extent
that the Company conducts successful development activities or
acquires properties containing proved reserves, the Company's
proved reserves will generally decline as reserves are produced.
There can be no assurance that the Company will be able to find
additional reserves or that the Company will drill economically
productive wells or acquire properties containing proved reserves.
Effects of Changing Oil and Gas Prices. The future financial
condition and results of operations of the Company depend upon the
prices it receives for its oil and gas production and the costs of
acquiring, developing and producing oil and gas. Oil and gas
prices have historically been volatile and are likely to continue
to be volatile in the future. Prices for oil and gas are subject
to fluctuations in response to relatively minor changes in supply
and demand, market uncertainty and a variety of other factors
beyond the control of the Company. These factors include, without
limitation, political stability in the Middle East and elsewhere,
the foreign supply of oil and gas, the price of foreign imports,
the level of consumer demand, government regulation and taxes, the
price and availability of alternative fuels and general economic
conditions. A significant reduction in oil or gas prices can
adversely affect both the estimated amount and value of the
Company's oil and gas reserves.
Operating Hazards and Uninsured Risks. The Company's
operations are subject to the risks inherent in the oil and gas
industry, including the risks of fire, explosions, blow-outs, pipe
failure, abnormally pressured formations and environmental
accidents such as oil spills, gas leaks, ruptures or discharges of
toxic gases, the occurrence of any of which could result in
substantial losses to the Company due to injury or loss of life,
severe damage to or destruction of property, natural resources and
equipment, pollution or other environmental damage, clean-up
responsibilities, regulatory investigation and penalties and
suspension of operations. In accordance with customary industry
practice, the Company maintains insurance against some, but not
all, of the risks described above. There can be no assurance that
any insurance will be adequate to cover any losses or liabilities.
The Company cannot predict the continued availability of insurance,
or availability at commercially acceptable premium levels.
Government Regulation. Oil and gas operations are subject to
certain federal, state and local laws and regulations that may be
changed from time to time in response to economic and political
conditions. Such laws and regulations have generally become more
stringent in recent years, often imposing greater liability on an
increasing number of parties. Because the requirements imposed by
such laws and regulations are frequently changed, the Company is
unable to predict the effect or cost of compliance with such
requirements or their effects on oil and gas use or prices. In
addition, a number of legislative proposals have been introduced in
Congress and state legislatures which, if enacted, would
significantly affect the oil and gas industry. Such proposals
involve among other things, the imposition of land use controls and
certain measures designed to prevent oil and gas companies from
acquiring assets in other energy areas. In view of the many
uncertainties which exist with respect to any legislative
proposals, the Company cannot predict the effect on the Company of
any legislation which might be enacted.
Substantial Competition. The oil and gas industry is highly
competitive and there are many other companies engaged in the oil
and gas business. Many of the companies with which the Company
competes have substantially greater financial, technical and other
resources and may have greater experience in the oil and gas
business than the Company.
Need for Additional Capital. The Company's ability to acquire
and exploit oil and gas properties is dependent upon its ability to
obtain necessary outside funding or to generate cash flow from
operations. The Company anticipates attempting to raise additional
capital through a registered public offering although there is no
assurance that the Company will be able to raise any additional
capital through the proposed offering or otherwise. The Company
anticipates that the net proceeds of the proposed offering,
together with any funds available from borrowings and potential
funds generated from operations, will be adequate for its currently
planned activities to develop its proved undeveloped and developed
nonproducing oil and gas reserves, but there is no assurance that
such funds will be adequate. If additional capital is required for
future acquisitions or exploitation activities and the capital
available from internal or external sources is insufficient, the
Company will be required to curtail its acquisition and
exploitation activities and its ability to grow or replace reserves
may be adversely affected.
-16-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITOR'S REPORT 18
FINANCIAL STATEMENTS
Balance sheets at December 31, 1995 and March 31, 1995
19
Statements of operations for the nine months ended
December 31, 1995 and 1994 and years ended
March 31, 1995 and 1994 20
Statements of changes in stockholders' equity for the
nine months ended December 31, 1995 and years ended
March 31, 1995 and 1994 21
Statements of cash flows for the nine months ended
December 31, 1995 and 1994 and years ended
March 31, 1995 and 1994 22-23
Notes to financial statements 24-28
SUPPLEMENTARY OIL AND GAS DISCLOSURES (UNAUDITED) 29-32
FINANCIAL STATEMENT SCHEDULE FOR THE NINE MONTHS ENDED
DECEMBER 31, 1995 AND YEARS ENDED MARCH 31, 1995 AND 1994
Valuation and qualifying accounts and reserves
(Schedule "II") 33
All other schedules and historical financial information are
omitted because they are not applicable or the required
information is shown in the financial statements or notes
thereto.
-17-
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Mineral Development, Inc.
We have audited the accompanying balance sheets of Mineral
Development, Inc. as of December 31, 1995 and March 31, 1995, and
the related statements of operations, changes in stockholders'
equity and cash flows for the nine months ended December 31, 1995
and the years ended March 31, 1995 and 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Mineral
Development, Inc. as of December 31, 1995 and March 31, 1995, and
the results of its operations and its cash flows for the nine
months ended December 31, 1995 and the years ended March 31, 1995
and 1994, in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. Schedule II, as
listed in the index to the financial statements, is presented for
purposes of complying with the Securities and Exchange Commission's
rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in
the audits of the basic financial statements and in our opinion
fairly states, in all material respects, the financial data
required to be set forth therein in relation to the basic financial
statements taken as a whole.
/s/ Belew Averitt LLP
March 22, 1996, except for Note 10
as to which the date is April 17, 1996
Dallas, Texas
-18-
<PAGE>
<TABLE>
MINERAL DEVELOPMENT, INC.
BALANCE SHEETS
DECEMBER 31, 1995 AND MARCH 31, 1995
<CAPTION>
December 31, March 31,
1995 1995
------------ ---------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 220,785 $ 145,728
Accounts receivable - trade (net of allowance for doubtful
accounts of $37,056 and $31,830, respectively) 359,546 430,467
Other 1,193 1,193
---------- ----------
Total current assets 581,524 577,388
Property and equipment, at cost (Note 3):
Undeveloped oil and gas properties 68,626 119,352
Proved developed oil and gas properties, based on the
successful efforts method 5,488,225 5,443,617
Office and field equipment 372,248 350,728
---------- ----------
5,929,099 5,913,697
Allowance for depreciation, depletion and amortization (4,979,936) (4,849,537)
---------- ----------
949,163 1,064,160
---------- ----------
$1,530,687 $1,641,548
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 475,872 $ 327,959
Joint interest prepayments 69,188 270,216
Revenues and royalties payable 87,793 35,729
Note payable (Note 2) 200,000 -
Current portion of long-term debt (Note 3) 28,561 18,530
---------- ----------
Total current liabilities 861,414 652,434
Long-term debt, less current portion (Note 3) 39,548 15,675
Commitments and contingencies (Note 7) - -
Stockholders' equity:
Common stock, $.01 par value; 25,000,000 shares authorized,
3,375,721 shares issued and outstanding (Note 5) 33,757 33,757
Capital in excess of par value 8,844,005 8,844,005
Deficit (8,248,037) (7,904,323)
---------- ----------
Total stockholders' equity 629,725 973,439
---------- ----------
$1,530,687 $1,641,548
========== ==========
</TABLE>
See accompanying notes to financial statements.
-19-
<PAGE>
<TABLE>
MINERAL DEVELOPMENT, INC.
STATEMENTS OF OPERATIONS
NINE MONTHS ENDED DECEMBER 31, 1995 AND 1994 AND
YEARS ENDED MARCH 31, 1995 AND 1994
<CAPTION>
Nine Months
Ended December 31, Year Ended March 31,
------------------ --------------------
1995 1994 1995 1994
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Oil and gas $ 559,844 $491,543 $ 625,790 $ 715,076
Management fees and other income 191,540 177,137 232,940 295,466
Gain on disposition of property
and equipment - 11,208 7,681 30,287
---------- -------- ---------- ----------
751,384 679,888 866,411 1,040,829
Costs and expenses:
Oil and gas production costs 333,444 302,168 403,541 458,891
Dry hole and abandonment costs 42,257 16,890 21,555 44,141
Depreciation, depletion and
amortization 233,958 67,118 106,489 109,812
General and administrative 480,446 350,993 498,715 377,536
Interest 4,993 2,424 4,101 4,711
---------- -------- ---------- ----------
1,095,098 739,593 1,034,401 995,091
---------- -------- ---------- ----------
Income (loss) before income taxes (343,714) (59,705) (167,990) 45,738
Income taxes (Note 4) - - - -
---------- -------- ---------- ----------
Net income (loss) $ (343,714) $(59,705) $ (167,990) $ 45,738
========== ======== ========== ==========
Net income (loss) per share $ (.10) $ (.02) $ (.05) $ .02
</TABLE>
See accompanying notes to financial statements.
-20-
<PAGE>
<TABLE>
MINERAL DEVELOPMENT, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
NINE MONTHS ENDED DECEMBER 31, 1995
AND YEARS ENDED MARCH 31, 1995 AND 1994
<CAPTION>
Common Stock
------------- Capital in
Number of excess of
shares Amount par value Deficit Total
------ ------ ---------- ------- -----
<S> <C> <C> <C> <C> <C>
Balance at March 31, 1993 2,753,000 $27,530 $8,639,413 $(7,782,071) $ 884,872
Exercise of stock options (Note 5) 230,000 2,300 18,000 - 20,300
Issuance of common stock 92,721 927 64,592 - 65,519
Net income - - - 45,738 45,738
--------- ------- ---------- ----------- ----------
Balance at March 31, 1994 3,075,721 30,757 8,722,005 (7,736,333) 1,016,429
Issuance of common stock 300,000 3,000 122,000 - 125,000
Net loss - - - (167,990) (167,990)
--------- ------- ---------- ----------- ----------
Balance at March 31, 1995 3,375,721 33,757 8,844,005 (7,904,323) 973,439
Net loss - - - (343,714) (343,714)
--------- ------- ---------- ----------- ----------
Balance at December 31, 1995 3,375,721 $33,757 $8,844,005 $(8,248,037) $ 629,725
========= ======= ========== =========== ==========
</TABLE>
See accompanying notes to financial statements.
-21-
<PAGE>
<TABLE>
MINERAL DEVELOPMENT, INC.
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED DECEMBER 31, 1995 AND 1994
AND YEARS ENDED MARCH 31, 1995 AND 1994
<CAPTION>
Nine months
ended December 31, Year ended March 31,
------------------ --------------------
1995 1994 1995 1994
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(343,714) $ (59,705) $(167,990) $ 45,738
Adjustments to reconcile net income
(loss) to net cash provided (used) by operating activities:
Depreciation, depletion and amortization 233,958 67,118 106,489 109,812
Gain on disposition of property and equipment - (11,208) (7,681) (30,287)
Loss on abandonment of property and equipment 35,711 - - -
(Increase) decrease in:
Accounts receivable 70,921 143,012 (61,733) 31,390
Other current assets - - 2,755 6,460
Increase (decrease) in accounts payable and other
current liabilities (1,051) (166,638) 243,072 72,806
--------- --------- --------- --------
Net cash provided (used) by operating activities (4,175) (27,421) 114,912 235,919
Cash flows from investing activities:
Additions to property and equipment (140,923) (137,736) (189,609) (182,106)
Proceeds from disposition of property and equipment 39,101 18,202 30,349 52,314
--------- --------- --------- --------
Net cash used by investing activities (101,822) (119,534) (159,260) (129,792)
Cash flows from financing activities:
Payment on line-of-credit - - - (25,000)
Proceeds from note payable and long-term debt 300,000 - 9,318 -
Payments on long-term debt (118,946) (21,202) (27,505) (27,079)
Proceeds from issuance of common stock - 125,000 125,000 20,300
--------- --------- --------- --------
Net cash provided (used) by financing activities 181,054 103,798 106,813 (31,779)
--------- --------- --------- --------
Net increase (decrease) in cash 75,057 (43,157) 62,465 74,348
Cash at beginning of period 145,728 83,263 83,263 8,915
--------- --------- --------- --------
Cash at end of period $ 220,785 $ 40,106 $ 145,728 $ 83,263
========= ========= ========= ========
Supplemental information:
Interest paid $ 4,993 $ 2,424 $ 4,101 $ 4,711
========= ========= ========= ========
Income taxes paid $ - $ - $ - $ -
========= ========= ========= ========
</TABLE>
-22-
<PAGE>
Noncash activities -
The Company acquired property and equipment for debt as follows:
<TABLE>
<CAPTION>
Nine months
ended December 31, Year ended March 31,
------------------ --------------------
1995 1994 1995 1994
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
Assets acquired $81,822 $23,203 $23,203 $49,200
Book value of assets traded-in (28,972) - - (15,050)
------- ------- ------- -------
Debt incurred $52,850 $23,203 $23,203 $34,150
======= ======= ======= =======
</TABLE>
During the year ended March 31, 1995, the Company incurred a
casualty loss relating to one of its vehicles. The insurance
proceeds of $17,000 received for the loss were used to directly repay
the related note payable.
The Company issued 92,721 shares of common stock in the year
ended March 31, 1994 for producing oil and gas properties valued
at $65,519.
See accompanying notes to financial statements.
-23-
<PAGE>
MINERAL DEVELOPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Organization. Mineral Development, Inc. (Company), a Texas
corporation, was formed in 1955. The Company's operations consist
primarily of acquiring interests in producing oil and gas
properties located in the continental United States. The Company
also acts as the operator on certain of these properties and
receives management fee income.
Year-end change. On February 13, 1996, the Company changed
its fiscal year-end from March 31 to December 31 effective December
31, 1995.
Management estimates. In preparing financial statements in
conformity with generally accepted accounting principles, the
Company is required to make estimates and assumptions that affect
the reported amounts of assets, liabilities, revenues and expenses
during the reporting period. Actual results may differ from
management's estimates.
Cash equivalents. The Company considers time deposits with
original maturities of three months or less to be components of
cash.
Property and equipment. The Company accounts for oil and gas
properties in accordance with the successful efforts method.
Accordingly, costs to acquire mineral interests in oil and gas
properties, to drill exploratory wells that find proved reserves
and to drill and equip development wells, are capitalized.
Geological and geophysical costs and costs to drill exploratory
wells that do not find proved reserves are expensed.
Depletion of proved oil and gas properties is computed on the
basis of current gross production in relation to estimated future
production of proved oil and gas reserves, based on current
economic and operating conditions.
Upon sale or retirement of depreciable property, the cost and
related accumulated depreciation, depletion and amortization are
removed and gain or loss is recognized. Maintenance and repairs
are expensed as incurred; renewals and replacements that improve or
extend the life of existing properties are capitalized.
Upon determination that an oil or gas property is not
commercially productive, the well is plugged and abandoned. Costs
associated with plugging a well, including restoration and
dismantlement costs, are expensed.
Allowances are provided for the impairment of value associated
with unproved oil and gas leases and for proved oil and gas
properties when the carrying value of the properties exceeds the
total discounted future net value of oil and gas reserves.
Depreciation of office and field equipment is provided by the
straight-line method over an estimated useful life of five years.
Income (loss) per share. Income (loss) per share is based on
the weighted average number of common shares and common share
equivalents outstanding (December 31, 1995 - 3,375,721;
December 31, 1994 - 3,209,054; March 31, 1995 - 3,275,721;
March 31, 1994 - 2,926,254). The effects of common stock
equivalents (Note 5) are antidilutive.
Federal income tax. The Company utilizes the asset and
liability method of computing deferred income taxes. In the event
differences between the financial reporting bases and the tax bases
of the Company's assets and liabilities result in deferred tax
assets, an evaluation of the probability of being able to realize
the future benefits indicated by such assets is considered
necessary. A valuation allowance is provided for a portion or all
of the
-24-
<PAGE>
deferred tax assets when it is more likely than not that such
portion, or all of such deferred tax assets, will not be realized.
Concentration of credit risk. Financial instruments that
potentially subject the Company to concentration of credit risk
consist principally of cash and trade receivables. The Company
places its cash with high credit quality financial institutions.
The Company has the right to offset certain of its trade
receivables with payables related to properties it operates on
behalf of joint interest owners. Consequently, management does not
anticipate significant credit losses from such financial
instruments.
Advertising. The Company expenses the production costs of
advertising and promotion expenditures as incurred. Advertising
expense was not significant for the nine months ended December 31,
1995 and 1994 and the years ended March 31, 1995 and 1994.
NOTE 2. NOTE PAYABLE
At December 31, 1995, the Company had a $200,000 demand note
payable outstanding to a bank. The note bears interest at the
bank's prime lending rate adjusted every ninety days (eight and
three-quarter percent at December 31, 1995) and is due in full on
May 17, 1996. The note is collateralized by assets pledged by a
director of the Company. The director also personally guaranteed
the note.
NOTE 3. LONG-TERM DEBT
Long-term debt at December 31, 1995 and March 31, 1995
consisted of the following:
<TABLE>
<CAPTION>
December 31, March 31,
1995 1995
------------ ---------
<S> <C> <C>
Notes payable to a finance company; monthly principal and interest
payments of $1,423; interest at 9.9%; collateralized by equipment $39,764 $ -
Note payable to a finance company; monthly principal and interest
payments of $762; interest at 10.9%; collateralized by equipment 15,701 20,986
Note payable to a vendor, monthly principal and interest payments of
$410, interest at 14%; unsecured 9,452 -
Note payable to a finance company; monthly principal and interest
payments of $375; interest at 8.9%; collateralized by equipment 3,192 6,267
Note payable to a finance company; monthly principal and interest
payments of $1,031; interest at 9.9%; collateralized by equipment - 6,952
------- -------
68,109 34,205
Less current portion (28,561) (18,530)
------- -------
$39,548 $15,675
======= =======
</TABLE>
Maturities of long-term debt consist of the following:
<TABLE>
<CAPTION>
Year ending December 31,
------------------------
<S> <C>
1996 $28,561
1997 27,525
1998 12,023
-------
$68,109
=======
</TABLE>
-25-
<PAGE>
NOTE 4. INCOME TAXES
No tax provision was required for the periods ended
December 31, 1995, December 31, 1994 and March 31, 1995 as the
Company incurred a loss. Income tax expense at March 31, 1994 of
$6,861 (fifteen percent effective tax rate) was offset by the
utilization of a net operating loss carryforward.
Deferred taxes resulted from differences between financial
statement and tax bases of assets and liabilities as well as unused
tax losses and credit carryforwards. Temporary differences and
carryforwards that comprise deferred taxes at December 31, 1995
were approximately as follows:
<TABLE>
<S> <C>
Depreciation, depletion and amortization,
including percentage
depletion carryforwards $ 94,000
Allowance for doubtful accounts 13,000
Net operating loss carryforward 2,336,000
Investment tax credit carryforward 135,000
----------
2,578,000
Less: Valuation allowance (2,578,000)
----------
$ -
==========
</TABLE>
At December 31, 1995, the Company had net operating loss
carryforwards and investment tax credit carryforwards of
approximately $6,870,000 and $135,000, respectively, which may be
applied against future taxable income. If unused, such
carryforwards expire in varying amounts from 1996 to 2011. Under
current tax law, the Company could lose substantial future benefit
of its carryforwards should there be a significant change in
ownership. Due to the uncertainty of utilizing such carryforwards
in future years, all of the deferred tax assets resulting from such
carryforwards have been included in the valuation allowance.
NOTE 5. COMMON STOCK OPTIONS
In August, 1994, the Company approved a stock option plan
(Plan), whereby options may be granted to selected employees to
purchase an aggregate of 1,000,000 shares of the Company's
authorized common stock. Under the Plan, options to purchase
shares will be granted at a price determined by the Company's stock
option committee, but in no event will it be less than one hundred
percent of the fair market value per share at the time of grant.
The Plan terminates in August, 2004.
In August, 1994, options to purchase 400,000 and 200,000
shares of common stock were granted to an officer/director under a
non-qualified stock option agreement and an incentive stock option
agreement, respectively. Under both of these agreements, the
option price is $.375 per share. Because the Plan and the related
incentive stock option grant was not approved within one year of
the Plan's adoption, the incentive stock option grant is now a
nonqualified option grant. The officer/director options expire
March 31, 1996 due to the resignation of the officer/director
effective December 31, 1995. Subsequent to December 31, 1995,
these options were exercised prior to their expiration.
The following table sets forth stock option transactions for
the nine months ended December 31, 1995 and the years ended March
31, 1995 and 1994:
<TABLE>
<CAPTION>
Option Price
Number of --------------
Shares Per share Total
--------- --------- -----
<S> <C> <C> <C>
Outstanding at March 31, 1993 200,000 $ .10 $ 20,000
Granted 30,000 $ .01 300
Exercised (230,000) (20,300)
-------- ----- --------
Outstanding at March 31, 1994 - - -
Granted 600,000 $.375 225,000
-------- ----- --------
Outstanding at March 31, 1995
and December 31, 1995 600,000 $225,000
======== ========
</TABLE>
-26-
<PAGE>
NOTE 6. RELATED PARTY TRANSACTIONS
Certain directors of the Company, and the companies with which
they are affiliated, participate in oil and gas joint ventures with
the Company upon substantially the same terms and conditions as
unrelated parties. In addition, the Company has purchased certain
oil and gas prospects as well as drilling services and oil field
supplies and services in the normal course of business from
companies in which certain directors have financial interests. For
the year ended March 31, 1994, the Company had purchased oil and
gas prospects totaling $19,025 from related parties. No
significant purchases were made during the periods ended
December 31, 1995, December 31, 1994 or March 31, 1995.
NOTE 7. COMMITMENTS AND CONTINGENCIES
The Company leases office space under an operating lease that
expires in November, 1996. Rent expense was approximately $32,000,
$26,700, $36,100 and $30,800 for the nine months ended December 31,
1995 and December 31, 1994 and the years ended March 31, 1995 and
March 31, 1994, respectively. As of December 31, 1995, the
Company's future minimum rental payments required under the
operating lease was $34,342 for the year ending December 31, 1996.
The Company entered into an employment agreement with its
former President through August 29, 1996 which provides for a
minimum annual salary, adjusted for incentives as determined by the
Board of Directors of the Company. Effective December 31, 1995,
the agreement was terminated due to the resignation of this
individual. No costs will be due under this agreement subsequent
to resignation.
NOTE 8. SIGNIFICANT CUSTOMERS
The Company sells a portion of its oil and gas production to
what is considered significant customers. During the periods ended
December 31, 1995, December 31, 1994, March 31, 1995 and March 31,
1994, sales to significant customers accounted for twenty-eight
percent, thirty percent, twenty-nine percent and thirteen percent,
respectively, of the Company's revenues.
NOTE 9. ENVIRONMENTAL REGULATION
Various Federal, state and local laws and regulations covering
discharge of materials into the environment, or otherwise relating
to the protection of the environment, may affect the Company's
operations and costs of oil and gas exploration, development and
production operations. It is not anticipated that the Company will
be required in the near future to expend amounts material in
relation to its total capital expenditure program by reason of
environmental laws and regulations, but because such laws and
regulations are constantly being changed, the Company is unable to
predict the conditions and other factors, over which the Company
does not exercise control, that may give rise to environmental
liabilities.
NOTE 10. SUBSEQUENT EVENT
The Company is actively seeking additional capital and has
announced that it intends to file a registration statement with the
Securities and Exchange Commission relating to a public offering of
up to 5,000,000 post-split shares of its common stock. The Company
also contemplates a one-for-five reverse stock split subject to
shareholder approval. The proceeds of the anticipated offering
would be used for acquisitions of producing oil and gas properties
and would assist the Company in meeting certain Nasdaq listing
requirements. Any offering will be made only by means of a
prospectus.
On March 29, 1996, the options to purchase 600,000 shares of
common stock were exercised for $225,000. The proceeds were used
to repay the $200,000 note payable to bank.
The Company has entered into an employment agreement with Mr.
Charles Gleeson for the position of President and Chief Executive
Officer of the Company. The agreement provides for a minimum
annual salary, adjusted for incentives, as determined by the Board
of Directors for the period June 1, 1996 through June 1, 1999.
-27-
<PAGE>
Additionally, the employment agreement stipulates the
Company's stock option plan be amended to increase the number of
pre-split shares of the Company's common stock subject to the grant
of options from 1,000,000 to 2,000,000. Options to purchase
500,000 pre-split shares of the Company's common stock are to be
granted to Mr. Gleeson at a purchase price per share of $.60. The
options are to have a ten-year term.
The employment agreement will not become effective unless the
Company is successful in raising a minimum of $9,000,000 in its
contemplated registered public offering.
-28-
<PAGE>
MINERAL DEVELOPMENT, INC.
SUPPLEMENTARY OIL AND GAS DISCLOSURES
A. Capitalized Cost (unaudited)
The Company's net investment in oil and gas producing
properties was as follows:
<TABLE>
<CAPTION>
December 31, March 31, March 31,
1995 1995 1994
------------ --------- ---------
<S> <C> <C> <C>
Capitalized cost of proved properties $5,488,225 $5,443,617 $5,459,810
Accumulated depreciation, depletion and amortization (4,716,768) (4,575,527) (4,604,563)
---------- ---------- ----------
Net capitalized costs $ 771,457 $ 868,090 $ 855,247
========== ========== ==========
</TABLE>
B. Cost incurred in oil and gas property acquisition, exploration
and development activities (unaudited)
The following table sets forth costs incurred in oil and gas
property acquisition, exploration and development activities,
including capital expenditures, for each of the respective periods:
<TABLE>
<CAPTION>
Nine months ended
December 31, Year ended March 31,
1995 1995 1994
------------------ ---- ----
<S> <C> <C> <C>
Unproved property acquisition $ 4,430 $ 82,743 $ 32,186
Proved property acquisition 51,397 64,640 128,539
Exploration 36,616 12,058 65,052
Development 71,166 30,446 53,043
-------- -------- --------
$163,609 $189,887 $278,820
======== ======== ========
</TABLE>
C. Oil and gas reserve quantities (unaudited)
The following unaudited information summarizes the Company's
net ownership interests in proved oil and gas reserves and related
data. Estimates of oil and gas reserves are made annually by the
Company's independent petroleum engineers. The determination of
these reserves is a complex and highly interpretive process subject
to continual revision as additional information becomes available.
In most cases, a relatively accurate determination of reserves may
not be possible for several years due to the time needed for
development, drilling, testing and studies of the reservoirs.
The quantities of proved crude oil and natural gas reserves
presented below include only those amounts which the Company
reasonably expects to recover in the future from known oil and gas
reservoirs under the existing economic and operating conditions and
which are located entirely in the United States. Therefore, proved
reserves are limited to those quantities that are recoverable
commercially at current prices and costs under existing regulatory
practices and with existing technology. Accordingly, any changes
in future prices, costs, regulations, technology and other factors
could significantly increase or decrease valuation estimates.
-29-
<PAGE>
<TABLE>
<CAPTION>
Crude Oil and Condensate (Barrels) Natural Gas (Mcf)
---------------------------------- -----------------
Nine Nine
Months Months
ended Year Ended March 31, ended Year Ended March 31,
Dec. 31, -------------------- Dec. 31, --------------------
1995 1995 1994 1995 1995 1994
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Proved developed and undeveloped
reserves at beginning of year 237,286 224,916 227,464 2,851,198 2,187,366 954,208
Sale of proved reserves - - - - - (6,585)
Purchase of proved reserves 7,691 325 26,653 2,152,212 681,915 635,621
Revisions of previous estimates (91,075) 26,115 (27,034) 16,162 192,732 571,054
New discoveries and extensions 12,610 6,663 24,968 117,535 - 186,877
Production (18,526) (20,733) (27,135) (180,223) (210,815) (153,809)
------- ------- ------- --------- --------- ---------
Proved developed and undeveloped
reserves at end of year 147,986 237,286 224,916 4,956,884 2,851,198 2,187,366
======= ======= ======= ========= ========= =========
Proved developed reserves at end
of year 140,870 216,006 180,093 2,817,700 1,515,226 2,093,192
======= ======= ======= ========= ========= =========
</TABLE>
D. Standardized measure of discounted future net cash flows
relating to proved reserves (unaudited)
Certain assumptions used in computing the standardized measure
and their inherent limitations are discussed below. The Company
believes this discussion is essential for a proper understanding
and assessment of the data presented.
The tables below present the standardized measure of future
net cash flows relating to proved reserves and the changes therein
computed in accordance with the methodology prescribed by the
Financial Accounting Standards Board (FASB). The FASB requires the
following specified assumptions be followed when computing the
standardized measure:
Proved reserves: Only "proved" reserves are included in
the valuation. The FASB adopted the Securities and
Exchange Commission and Department of Energy definition
of proved reserves. Excluded from the definition are
estimates of potential or possible reserves associated
with existing proved or unproved properties, which often
are a significant factor in the Company's investment
decision-making process.
Current prices: Expected revenues are based on oil and
gas prices representative of actual prices existing at
year-end. Expected increases because of inflation or
anticipated Federal regulatory changes and actual price
changes since year-end are not considered until actually
in effect.
Current costs: Production and development costs related
to future production of proved reserves are based on cost
levels existing at the end of the year for which those
estimates were made and assume continuation of existing
economic conditions. Therefore, adjustments for
inflation or other anticipated cost changes are not
included in these forecasts until the actual cost changes
are realized.
Income taxes: Because it is estimated that the Company
will not pay a significant amount of taxes in the
foreseeable future, no income tax provision has been made
for any year presented.
Ten percent (10%) discount: Future net cash flows from
oil and gas production for December 31, 1995, March 31,
1995 and 1994 have been discounted at ten percent (10%).
-30-
<PAGE>
The assumptions used to compute the standardized measure are
those required by the FASB and, as such, do not necessarily reflect
the Company's expectations of actual revenues to be derived from
those reserves nor their present worth.
The limitations inherent in the reserve quantity estimation
process previously described are equally applicable herein because
these estimates are the basis for the valuation process. Assigning
monetary values to such quantity estimates does not reduce the
subjective and ever-changing nature of such reserve estimates.
Additional subjectivity occurs when determining present values
because the rate of producing the reserves must be estimated. In
addition to errors inherent in predicting the future, variations
from the expected production rate could also result directly or
indirectly from factors outside of the Company's control, such as
unintentional delays in development, environmental concerns,
changes in prices and regulatory controls.
The standardized measure does not necessarily reflect the
amounts that would be incurred to obtain an equivalent amount of
oil and gas reserves, nor would the Company necessarily be willing
to sell the existing reserves for those amounts. Numerous other
factors in addition to those used in the valuation must be
considered by the Company when allocating funds to the exploration
and development of known and prospective oil and gas reserves.
Standardized measure of discounted future net cash flows
relating to proved reserves (unaudited)
<TABLE>
<CAPTION>
December 31, March 31, March 31,
1995 1995 1994
------------ --------- ---------
<S> <C> <C> <C>
Future estimated cash inflows $11,571,416 $8,002,057 $7,420,781
Future estimated production and
development costs 4,692,741 3,349,010 2,476,827
----------- ---------- ----------
Future estimated net cash flows 6,878,675 4,653,047 4,943,954
Discount to reduce estimated net cash flows
to present value 2,874,080 1,535,012 1,982,735
----------- ---------- ----------
Standardized measure of discounted future net
cash flows relating to proved reserves $ 4,004,595 $3,118,035 $2,961,219
=========== ========== ==========
</TABLE>
-31-
<PAGE>
<TABLE>
MINERAL DEVELOPMENT, INC.
SUMMARY OF CHANGES IN STANDARDIZED MEASURE OF
DISCOUNTED FUTURE NET CASH FLOWS RELATING
TO PROVED RESERVES (UNAUDITED)
<CAPTION>
Nine months
ended Year ended March 31,
December 31, --------------------
1995 1995 1994
---- ---- ----
<S> <C> <C> <C>
Changes in discounted net cash flows:
Increases (decreases):
Additions to proved reserves resulting from extensions
and discoveries less related costs $ 193,900 $ 74,924 $ 478,479
Purchases of proved reserves 1,436,568 349,368 567,576
Accretion of discount 233,853 296,122 222,164
Sales of oil and gas, net of production costs of $333,444,
$403,541 and $458,891, respectively (226,400) (222,249) (256,185)
Revisions of previous estimates:
Changes in prices and production costs 136,251 (537,607) (593,274)
Changes in quantities (887,612) 196,258 342,073
Sales of proved reserves - - (8,363)
Other - - (12,893)
---------- ---------- ----------
Net increase 886,560 156,816 739,577
Beginning of year 3,118,035 2,961,219 2,221,642
---------- ---------- ----------
End of year $4,004,595 $3,118,035 $2,961,219
========== ========== ==========
</TABLE>
-32-
<PAGE>
<TABLE>
MINERAL DEVELOPMENT, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<CAPTION>
Additions
Balance at charged to Balance
beginning costs and Other at end
Description of year expenses changes of year
- ----------- ---------- ---------- ------- -------
<S> <C> <C> <C> <C>
Year ended March 31, 1994:
Allowance for doubtful accounts $38,297 $ - $(6,467)* $31,830
======= ====== ======= =======
Year ended March 31, 1995:
Allowance for doubtful accounts $31,830 $ - $ - $31,830
======= ====== ======= =======
Nine months ended December 31, 1995:
Allowance for doubtful accounts $31,830 $6,500 $(1,274)* $37,056
======= ====== ======= =======
<FN>
- -------------------------------
* Doubtful accounts written-off.
</FN>
</TABLE>
-33-
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors
The directors of the Company at April 1, 1996, were as
follows:
<TABLE>
<CAPTION>
Year First
Director Age Current Office(s) Held in the Company Elected Director
- -------- --- ------------------------------------- ----------------
<S> <C> <C> <C>
David N. Fitzgerald 73 Chairman of the Board,
President and Chief
Executive Officer(1) 1993(2)
Glenn L. Seitz 39 Treasurer and Director 1988
Richard D. Collins 63 Secretary and Director(1) 1993(3)
William R. Granberry 54 Director 1994
John A. Schlensker 66 Director 1977
<FN>
- --------------------
(1) Member of Stock Option Committee.
(2) Mr. Fitzgerald served as a Director of the Company from 1977
to 1985.
(3) Mr. Collins served as a Director of the Company from 1976 to
1985.
</FN>
</TABLE>
Mr. Fitzgerald, has been Chairman of the Board, Chief
Executive Officer and President of the Company since January 1996.
Mr. Fitzgerald was Chairman of the Board of Directors of the
Company from October 1993 to August 1994. Mr. Fitzgerald is
President of Dave Fitzgerald, Inc. and Exit Oilfield Equipment,
Inc. and until 1991 was President of Oil Patch Sales and Rentals,
Inc., all privately held oilfield investment and equipment
companies. He is currently also a director of TMBR/Sharp Drilling,
Inc. and Minute Man of America, Inc., a manufacturer of gaming
products which is publicly traded on the OTC Bulletin Board.
Mr. Seitz is Treasurer and a Director of the Company. Mr.
Seitz was President of the Company from January 1989 to October
1994. Mr. Seitz was employed by Newport Petroleums, Inc.
("Newport") from 1982 to 1986, when Newport was merged with and
into the Company. He became a Director of the Company in May 1988.
Mr. Seitz became Treasurer of the Company in October 1994 and was
Treasurer of the Company from April 1988 to May 1994.
Mr. Collins has been a Director of the Company since October
1993 and Secretary of the Company since May 1994. Mr. Collins was
Treasurer of the Company from May 1994 to October 1994. Mr.
Collins has been an independent financial consultant for the last
nine years as well as an investor in several private companies.
Since February 1994, Mr. Collins has been a director of
International Star Resources, Ltd., a company listed on the
Vancouver Stock Exchange and Minute Man of America, Inc., a
manufacturer of gaming products which is publicly traded on the OTC
Bulletin Board. From 1976 to 1984, he served as President, Chief
Financial Officer and Director of the Company. Mr. Collins is a
certified public accountant.
Mr. Granberry was Chairman of the Board and Chief Executive
Officer of the Company from August 1994 to December 1995 at which
time he resigned to become President of Tom Brown, Inc., a publicly
traded oil and gas exploration and production company in Midland,
Texas. Mr. Granberry was President of the Company from October
1994 December 1995. Previously, he was Vice President of PG&E
Resources Company from May 1989 to July 1994. From September 1985
to May 1989, Mr. Granberry was a General Manager for John H. Hill
-34-
<PAGE>
and from August 1981 to August 1985 he was Vice President of
Production for Tom Brown, Inc. Mr. Granberry held various
positions with Amoco Production Company from 1966 to 1981, and
concluded his employment as Division Production Manager. In
January 1995, Mr. Granberry became a director of Tom Brown, Inc.
Mr. Schlensker, a Director of the Company, is an independent
drilling consultant and completion engineer. From 1967 to 1987, he
was President of Schlensker Drilling Corporation and, from 1973 to
1987, he was President of Guffey-Schlensker Drilling Corporation.
Schlensker Drilling Corporation filed a petition pursuant to
Chapter 11 of the Federal Bankruptcy Code on December 13, 1985, and
has been liquidated under Chapter 7. Mr. Schlensker was Chairman
of the Board of the Company from 1977 through October 1993.
Executive Officers
The executive officers of the Company at April 1, 1996, were
as follows:
<TABLE>
<CAPTION>
Current Offices Held in the
Officers Age Company
- -------- --- ---------------------------
<S> <C> <C>
David N. Fitzgerald 73 President, Chief Executive
Officer and Chairman of the Board
Glenn L. Seitz 39 Treasurer
Richard D. Collins 63 Secretary
Sharon Figueroa 33 Assistant Secretary
</TABLE>
For information regarding the business experience of Messrs.
Fitzgerald, Seitz and Collins, see the biographies above.
Ms. Figueroa is the Company's Production Administrator and
Assistant Secretary. Ms. Figueroa was Corporate Secretary of the
Company from 1988 through May 1994. She joined the Company in
August 1986. Since graduating from East Texas State University
with a B.S. degree in 1983, she worked for Matrix Energy, Inc. and
AOP Operating Corp.
The term of each director and executive officer expires at the
annual meeting of shareholders and directors, respectively, or at
such times as their respective successors are duly elected and
qualified.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The table below includes compensation paid by the Company for
services rendered during the nine months ended December 1995 and
the fiscal years ended March 31, 1995 and 1994 to the named
individuals. None of the other executive officers of the Company
had total salary and bonus in excess of $100,000 during the nine
months ended December 31, 1995.
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation Awards
Name and Principal ------------------- -------------------
Position Period Ended Salary($) Options(#)
- ------------------ ------------ --------- ----------
<S> <C> <C> <C>
William R. Granberry December 31, 1995 $117,000 0
President from August 1994 to March 31, 1995 92,696 600,000
December 1995 March 31, 1994 N/A N/A
</TABLE>
-35-
<PAGE>
Stock Option Plan
General. On August 28, 1994, the Board of Directors of the
Company approved the Mineral Development, Inc. Stock Option Plan
(the "Option Plan"). The purpose of the Option Plan is to promote
the interests of the Company and its shareholders by attracting,
retaining and stimulating the performance of selected employees and
giving such employees the opportunity to acquire a proprietary
interest in the Company and an increased personal interest in the
Company's continued success and progress. The Option Plan provides
for the grant of incentive stock options ("ISOs"), under Section
422A of the Internal Revenue Code of 1986, as amended (the "Code"),
and the grant of nonqualified stock options that do not qualify
under Section 422A of the Code ("NQSOs"). Under the terms of the
Option Plan, as amended by the Board on April 9, 1996, 2,000,000
shares of Common Stock were reserved for the granting of options.
At December 31, 1995, options to purchase 400,000 shares remained
available for granting under the Option Plan. Stock issued under
the Option Plan may be newly issued or treasury shares. If any
option granted under the Option Plan expires or terminates for any
reason without having been exercised in full, new options may
thereafter be granted covering such shares.
Administration. The Option Plan is administered by a
committee (the "Option Plan Committee") of two or more
"disinterested persons" (as defined by Rule 16b-3 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) appointed by
the Board. The Option Plan Committee currently consists of two
members of the Board, David N. Fitzgerald and Richard D. Collins.
The Option Plan grants broad authority to the Option Plan Committee
to grant options to any regular salaried officer or key employee of
the Company and its affiliates selected by the Option Plan
Committee, to determine the number of shares subject to options and
the exercise price of the options and to provide for other option
features such as the time or date of grant, the appropriate
exercise periods and methods of exercise and requirements regarding
the vesting of options.
Terms of Options. The option price per share with respect to
ISOs is determined by the Option Plan Committee, but shall in no
instance be less than 100% of the fair market value of the Common
Stock on the date of grant, or 110% of the fair market value with
respect to any ISO issued to a holder of 10% or more of the
Company's shares. There is no price requirement for NQSOs, other
than the option price must exceed the par value of the Common
Stock. The Option Plan Committee oversees the methods of exercise
of options, with attention being given to compliance with
appropriate securities laws and regulations. The Option Plan
permits the use of already owned Common Stock as payment for the
exercise price of options. The duration of options granted under
the Option Plan cannot exceed ten years (five years with respect to
a holder of 10% or more of the Company's shares in the case of an
ISO). Options granted under the Option Plan are not assignable or
transferable, other than by will or by the laws of descent and
distribution or pursuant to a qualified domestic relations order.
During the lifetime of an optionee, the options granted under the
Option Plan are exercisable only by the optionee or his or her
guardian or legal representative.
Adjustments. The Option Plan Committee may make such
adjustments in the option price and the number of shares covered by
outstanding options that are required to prevent any dilution or
enlargement of the rights of the holders of such options that would
otherwise result from any reorganization, recapitalization, stock
split, stock dividend, combination of shares, merger,
consolidation, issuance of rights or any other change in the
capital structure of the Company. The Option Plan Committee may
also make such adjustments in the aggregate number of shares
subject to options which are appropriate to reflect any transaction
or event described in the preceding sentence.
Amendment and Termination. The Board of Directors may at any
time suspend or terminate the Option Plan or may amend it from time
to time in such respects as the Board of Directors may deem
advisable in order that the options granted thereunder may conform
to any changes in the law or in any other respect that the Board of
Directors may deem to be in the best interests of the Company;
provided, however, that without approval by the shareholders of the
Company voting the proper percentage of its voting power, no such
amendment shall make any change in the Option Plan for which
shareholder approval is required of the Company in order to comply
with (i) Rule 16b-3, as amended, promulgated under the Exchange
Act, (ii) the Code or regulatory provisions dealing with ISOs, or
(iii) any other applicable rule or law. Unless sooner terminated,
the Option Plan shall terminate on August 29, 2004. Except in
connection with satisfaction of withholding requirements of any
federal, state or local
-36-
<PAGE>
withholding tax, no amendment, suspension or termination of the
Option Plan shall, without an optionee's consent, impair or negate
any of the rights or obligations under any option theretofore
granted to such optionee under the Option Plan.
Stock Option Grants. The following table provides information
related to options granted to the named executive officers during
the nine months ended December 31, 1995 and the fiscal year ended
March 31, 1995. The Company did not grant any other individual
stock options (whether or not in tandem with stock appreciation
rights ("SAR's")) nor freestanding SAR's during fiscal 1994.
<TABLE>
<CAPTION>
Individual Grants
----------------- Potential Realizable
Number of % of Value at Assumed Rates
Securities Total Exercise of Stock Price
Underlying Options or Base Appreciation for Option
Period Options Granted to Price Expiration Term(1)
Name Ended Granted Employees ($/Sh) Date 5%($) 10%($)
- ---- ------ ---------- ---------- -------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
William R. Granberry December 31, 1995 0 -- -- -- -- --
March 31, 1995 600,000(2) 100% $.375 03/31/96(3) $243,240 $262,147
<FN>
_______________
(1) Calculation based on stock option exercise price over period
of option assuming annual compounding. The columns present
estimates of potential values based on certain mathematical
assumptions. The actual value, if any, that an executive
officer may realize is dependent upon the market price on
the date of option exercise.
(2) Represents a grant under the Company's Stock Option Plan.
See "Stock Option Plan."
(3) The expiration date of these options became March 31, 1996
as a result of Mr. Granberry's resignation effective
December 31, 1995.
</FN>
</TABLE>
Stock Option Exercised and Fiscal Year End Stock Option
Values. The following table provides certain information
concerning the number and value of shares of Common Stock
acquired upon the exercise of stock options by the named
individuals during the nine months ended December 31, 1995 and
the fiscal year ended March 31, 1995 and value of stock options
held during each period.
<TABLE>
<CAPTION>
Shares Number of Securities
Acquired Underlying Unexercised Value of Unexercised
Upon Value Options(#) In-the-Money Options($)(1)
Name Period Ended Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------ ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
William R. December 31, 1995 0 $0 600,000 0 $0 N/A
Granberry March 31, 1995 0 $0 600,000 0 $150,000 N/A
<FN>
____________________
(1) Market value of the underlying Common Stock at December 31,
1995, minus exercise price.
</FN>
</TABLE>
Employment Contracts
On August 23, 1994, the Company entered into an employment
agreement with William R. Granberry, Chairman of the Board,
President and Chief Executive Officer. The agreement provided a
two-year term, subject to extension upon mutual agreement of the
parties. During the employment term, the Company was required to
cause the employee to be nominated for election as a director at
each annual or applicable special meeting of shareholders of the
Company, and the Company was required to use its best efforts,
consistent with its fiduciary responsibilities to the
shareholders, to cause the election of Mr. Granberry as a
director. The employment agreement was subject to early
termination as provided therein, including termination by the
Company for "cause" (as defined in the employment agreement).
The employment agreement provided for an annual base salary of
$156,000 and such bonuses or other discretionary compensation as
the Board may determine. The employment agreement also provided
for medical and dental benefits and term life insurance in the
amount of $500,000 for beneficiaries of Mr. Granberry's choosing,
even if not provided to other employees of the Company. In
addition, the employment agreement provided, among other things,
for expense reimbursement and the grant of stock options to
purchase up to 600,000 shares of Common Stock described under
"Stock Option Plan - Stock Option Grants."
-37-
<PAGE>
The employment agreement grants certain transferable
piggyback registration rights with respect to all shares of
Common Stock that Mr. Granberry from time to time beneficially
owns even after termination of employment. All costs of
registration rights will be borne by the Company and the Company
will indemnify Mr. Granberry with respect to certain losses,
claims, damages and liabilities arising from such registration.
The employment agreement further provided that, except in limited
circumstances, if at any time during the employment term, the
Company issued or sold to any third party any shares of capital
stock, the Company would concurrently with each such issuance or
sale, grant to Mr. Granberry additional options to purchase
Common Stock as will give Mr. Granberry a percentage ownership,
immediately after such issuance or sale, equal as nearly as
practicable to the percentage ownership of Mr. Granberry
immediately prior to such issuance or sale. The purchase price
of the shares covered by the additional options was to have been
the fair market value of a share of the Common Stock on the date
of grant. Each such option was to have had a ten year term and
would have been exercisable in whole at any time and in part from
time to time. During the term of the employment agreement and
thereafter without limitation of time, the Company is required to
indemnify and advance expenses to Mr. Granberry to the fullest
extent permitted by the laws of the State of Texas from time to
time in effect. Mr. Granberry resigned as Chairman of the Board,
President and Chief Executive Officer of the Company effective
December 31, 1995 and the employment agreement terminated at that
time.
Effective April 17, 1996, the Company entered into an
employment agreement with Charles W. Gleeson to serve as
President and Chief Executive Officer of the Company. The
agreement provides for a three-year term, subject to extension
upon mutual agreement of the parties, provided, however, that the
employment agreement shall not become effective until the Company
is successful in raising at least $9,000,000 of capital in a
contemplated registered public offering. Beginning with the 1996
Annual Meeting and during the employment term, the Company is
required to cause the Mr. Gleeson to be nominated for election as
a director at each annual or applicable special meeting of
shareholders of the Company, and the Company is required to use
its best efforts, consistent with its fiduciary responsibilities
to the shareholders, to cause the election of Mr. Gleeson as a
director. The employment agreement is subject to early
termination as provided therein, including termination by the
Company for "cause" (as defined in the employment agreement) or
termination by Mr. Gleeson for "good reason upon change of
control" (as defined in the employment agreement). The
employment agreement provides for an annual base salary of
$140,000 and such bonuses or other discretionary compensation as
the Board may determine. The employment agreement also entitles
Mr. Gleeson to participate in employee benefit plans, programs
and arrangements provided by the Company including medical and
dental benefits. In addition, the employment agreement provides,
among other things, for expense reimbursement and the grant of
stock options to purchase up to 500,000 shares of Common Stock
for an exercise price of $0.60 per share (prior to the Company's
contemplated one-for-five reverse stock split).
The employment agreement provides that if at any time within
twelve months of a change of control, the Company terminates the
employment agreement without cause or if Mr. Gleeson resigns for
"good reason upon change of control," Mr. Gleeson will be
entitled to, within 45 days of the severance of employment, a
lump-sum payment equal to his base salary for the unexpired term
of his employment agreement.
A change of control is deemed to have occurred if (i) after
the consummation of the currently planned registered public
offering, more than 30% of the combined voting power of the
Company's then outstanding securities is acquired, directly or
indirectly, by any person or entity, or (ii) at any time during
the 24-month period commencing after a tender offer, merger,
consolidation, sale of assets or contested election, or any
combination of such transactions, individuals who at the
beginning of each period constitute at least a majority of the
Company's Board of Directors cease to be "continuing directors"
(meaning directors of the Company who either were directors prior
to such transaction or who subsequently became directors and
whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least two-thirds of
the directors then still in office who were directors prior to
such transaction), or (iii) the shareholders of the Company
approve a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation that would
result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting
securities of the surviving entity) at least 60% of the total
voting power represented by the voting securities of the Company
or such surviving entity which are outstanding immediately after
such merger or consolidation, or (iv) the shareholders of the
Company approve a plan of complete
-38-
<PAGE>
liquidation of the Company or an agreement of sale or disposition
by the Company of all or substantially all of the Company's
assets.
Compensation of Directors
Beginning May 18, 1994, the Board of Directors of the
Company adopted a policy whereby non-employee Board members would
receive $250 plus expenses for each Board meeting attended.
Prior to May 18, 1994, the outside Board members did not receive
any compensation for serving as directors.
Certain Transactions
During August 1994, the Company sold an aggregate of 100,000
shares of its Common Stock to David N. Fitzgerald, a director,
for a price of $.50 per share and 200,000 shares of its Common
Stock to William Granberry, former Chairman of the Board, Chief
Executive Officer and President, for a price of $.375 per share.
In October 1995, the Company borrowed, in the form of a
short-term note, $100,000 from William Granberry, then Chairman
of the Board and President, at an interest rate of 8.75%. The
Company pledged certain oil and gas properties to Mr. Granberry
to receive this loan. Subsequently, the Company borrowed
$200,000 from a bank in the form of a demand note and repaid the
loan from Mr. Granberry with the proceeds, at which time the
security interest in the Company's oil and gas properties was
released. Mr. Granberry pledged certain assets as collateral for
the bank note and, in addition, Mr. Granberry personally
guaranteed the note. This note was repaid by the Company in
April 1996 through proceeds received from Mr. Granberry upon the
exercise of his outstanding stock options.
-39-
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The number of shares of the Company Common Stock
beneficially owned as of April 1, 1996, by each director, by the
named executive officer listed above under "Item 11. Executive
Compensation," by all directors and executive officers as a
group, and by each person known to management to own beneficially
more than 5% of the outstanding Common Stock is set forth in the
following table and related notes:
<TABLE>
<CAPTION>
Shares of
Common Stock
Name and Address Beneficially Percent
of Beneficial Owner Owned(1) of Class
- ------------------- ------------ --------
<S> <C> <C>
Richard D. Collins 165,983 4.18
4406 Airport Freeway
Fort Worth, Texas 76117
David N. Fitzgerald 717,386(2) 18.04
3105 Seaboard
Midland, Texas 79705
William R. Granberry 400,000 10.06
508 W. Wall, Suite 500
Midland, Texas 79702
John A. Schlensker 103,721(3) 2.61
1120 Parkhaven Avenue
Richardson, Texas 75080
Glenn L. Seitz 358,695 9.02
9400 N. Central, Suite 1209
Dallas, Texas 75231
All directors and executive
officers as a group (5 persons) 1,745,785(3) 43.91
<FN>
- ----------------------
(1) Unless otherwise indicated, all shares are owned directly,
and each person has sole voting and investment power with
respect to the shares reported.
(2) Includes 45,623 shares held by Frances Fitzgerald, Mr.
Fitzgerald's wife, 102,120 shares held by Dave Fitzgerald,
Inc., a company of which Mr. Fitzgerald is president, and
23,059 shares held by Sunsuzli, Ltd., a limited partnership
of which Mr. Fitzgerald is the general partner.
(3) Includes 26,400 shares held by Schlensker Drilling Corp., a
corporation of which Mr. Schlensker is president and sole
owner, and 7,021 shares held by D. Diane Schlensker, Mr.
Schlensker's wife.
</FN>
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Section 16(a) Reporting
Paragraph Section 16(a) of the Exchange Act, requires the
Company's directors and executive officers, and persons who own
more than 10% of the Company's Common Stock, to file with the
Commission initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the
Company. Officers, directors and greater than 10% shareholders
are required by Commission regulation to furnish the Company with
copies of all Section 16(a) reports they file. To the Company's
knowledge, based solely on review
-40-
<PAGE>
of the copies of such reports furnished to the Company and
written representations, during the transition period ended
December 31, 1995, all Section 16(a) filing requirements
applicable to its officers, directors and greater than 10%
beneficial owners were complied with.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
(a) The following documents are filed as a part of this report:
1. Financial Statements (included in Item 8 Page
at the page indicated)
Independent Auditor's Report 18
Balance sheets at December 31, 1995 and March 31, 1995 19
Statements of operations for the nine months ended
December 31, 1995 and 1994 and years ended
March 31, 1995 and 1994 20
Statements of changes in stockholders' equity for the
nine months ended December 31, 1995 and years ended
March 31, 1995 and 1994 21
Statements of cash flows for the nine months ended
December 31, 1995 and 1994 and years ended
March 31, 1995 and 1994 22-23
Notes to financial statements 24-28
SUPPLEMENTARY OIL AND GAS DISCLOSURES (UNAUDITED) 29-32
FINANCIAL STATEMENT SCHEDULE FOR THE NINE MONTHS ENDED
DECEMBER 31, 1995 AND YEARS ENDED MARCH 31, 1995 AND 1994
Valuation and qualifying accounts and reserves
(Schedule "II") 33
All other schedules and historical financial information are
omitted because they are not applicable or the required
information is shown in the financial statements or notes
thereto.
-41-
<PAGE>
3. Exhibits:
3.1 Articles of Incorporation of the Company,
as amended (Exhibit 3.1)*
3.2 Certificate and Articles of Amendment,
dated March 2, 1992 (Exhibit 3.2)**
3.3 Bylaws of the Company, as amended (Exhibit
3.2)***
4.1 Specimen Stock Certificate for the Common
Stock of the Company (Exhibit 4.1)***
10.1 Stock Option Agreement dated July 24,
1989, by and between Mineral
Development, Inc. and Glenn L. Seitz
(Exhibit 10.5)*
10.2 Mineral Development. Inc. Stock Option Plan
(Exhibit 10.2)****; First Amendment to
Mineral Development, Inc. Stock Option Plan
(filed herewith)
10.3 Incentive Stock Option Agreement, dated
August 29, 1994 by and between the Company
and William R. Granberry (Exhibit 10.3)****
10.4 Nonqualified Stock Option Agreement, dated
August 29, 1994 by and between the Company
and William R. Granberry (Exhibit 10.4)****
10.5 Employment Agreement dated as of August 23,
1994, by and between the Company and
William R. Granberry (Exhibit 10.5)****
10.6 Employment Agreement dated as of April 17,
1996, by and between the Company and
Charles W. Gleeson (filed herewith)
27.1 Financial Data Schedule (filed herewith)
- ----------------------
* Filed as the Exhibit shown in parenthesis to the Company's
Annual Report on Form 10-K for the fiscal year ended March
31, 1989, and incorporated herein by reference.
** Filed as the Exhibit shown in parenthesis to the Company's
Annual Report on Form 10-K for the fiscal year ended March
31, 1992, and incorporated herein by reference.
*** Filed as the Exhibit shown in parenthesis to the Company's
Registration Statement No. 33-3134 on Form S-4 and
incorporated herein by reference.
**** Filed as the Exhibit shown in parenthesis to the Company's
Annual Report on Form 10-K for the fiscal year ended March
31, 1995.
-42-
<PAGE>
(b) Reports on Form 8-K
During the last quarter of the transition period ended
December 31, 1995 and the Company's first quarter ended
March 31, 1996, the Company filed one Current Report on Form
8-K dated February 13, 1996, relating to the change of the
Company's fiscal year from March 31 to December 31.
-43-
<PAGE>
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of Dallas, Texas on the 17th
of April, 1996.
MINERAL DEVELOPMENT, INC.
By: /s/ David N. Fitzgerald
David N. Fitzgerald
President
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on
the dates indicated.
April 12, 1996 /s/ David N. Fitzgerald
David N. Fitzgerald, Chairman of
the Board and President (Chief
Executive Officer)
April 17, 1996 /s/ Glenn L. Seitz
Glenn L. Seitz, Director and
Treasurer
(Chief Financial and Accounting
Officer)
April 17, 1996 /s/ Richard D. Collins
Richard D. Collins, Secretary and
Director
April 12, 1996 /s/ W. R. Granberry
W. R. Granberry, Director
April 17, 1996 /s/ John A. Schlensker
John A. Schlensker, Director
-44-
<PAGE>
INDEX TO EXHIBITS
Exhibit
No. Item
3.1 Articles of Incorporation of the Company, as amended
(Exhibit 3.1)*
3.2 Certificate and Articles of Amendment, dated March 2,
1992 (Exhibit 3.2)**
3.3 Bylaws of the Company, as amended (Exhibit 3.2)***
4.1 Specimen Stock Certificate for Common Stock of the
Company (Exhibit 4.1)***
10.1 Stock Option Agreement dated July 24, 1989, by and
between Mineral Development, Inc. and Glenn L. Seitz
(Exhibit 10.5)*
10.2 Mineral Development. Inc. Stock Option Plan (Exhibit
10.2)****; First Amendment to Mineral Development, Inc.
Stock Option Plan (filed herewith)
10.3 Incentive Stock Option Agreement, dated August 29, 1994
by and between the Company and William R. Granberry
(Exhibit 10.3)****
10.4 Nonqualified Stock Option Agreement, dated August 29,
1994 by and between the Company and William R. Granberry
(Exhibit 10.4)****
10.5 Employment Agreement dated as of August 23, 1994, by and
between the Company and William R. Granberry (Exhibit
10.5)****
10.6 Employment Agreement dated as of April 17, 1996, by and
between the Company and Charles W. Gleeson (filed
herewith)
27.1 Financial Data Schedule (filed herewith)
_______________________
* Filed as the Exhibit shown in parenthesis to the Company's
Annual Report on Form 10-K for the fiscal year ended March
31, 1989, and incorporated herein by reference.
** Filed as the Exhibit shown in parenthesis to the Company's
Annual Report on Form 10-K for the fiscal year ended March
31, 1992, and incorporated herein by reference.
*** Filed as the Exhibit shown in parenthesis to the Company's
Registration Statement No. 33-3134 on Form S-4 and
incorporated herein by reference.
**** Filed as the Exhibit shown in parenthesis to the Company's
Annual Report on Form 10-K for the fiscal year ended March
31, 1995.
-45-
<PAGE>
Exhibit 10.2
FIRST AMENDMENT TO
MINERAL DEVELOPMENT, INC.
STOCK OPTION PLAN
Pursuant to the Unanimous Consent of Directors in Lieu of
Meeting of Mineral Development, Inc. dated as of the 10th day of
April, 1996, the Mineral Development, Inc. Stock Option Plan dated
August 29, 1994 (the "Plan") shall be amended to change Section 3
of the Plan, which Section 3, as amended, shall read in its
entirety as follows:
"Section 3. Number of Shares. Options may be granted by
the Company from time to time under the Plan to purchase
an aggregate of 2,000,000 shares of the authorized Common
Stock. If any Option expires or terminates for any
reason without having been exercised in full, the
unpurchased shares subject to such expired or terminated
Option shall be available for purposes of the Plan."
IN WITNESS WHEREOF, this Amendment to the Mineral Development,
Inc. Stock Option Plan has been executed as of, but not necessarily
on, the 10th day of April, 1996, such Amendment to become effective
as of the date hereof.
MINERAL DEVELOPMENT, INC.
By: /s/ David N. Fitzgerald
David N. Fitzgerald
President
<PAGE>
Exhibit 10.6
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement"), dated as of April 17,
1996, but effective as set forth in Section 2, between MINERAL
DEVELOPMENT, INC., a Texas corporation (the "Company"), and CHARLES
W. GLEESON, an individual residing in Midland, Texas (the
"Employee").
WHEREAS, the Company desires to employ the Employee, and the
Employee desires to be employed by the Company, on the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements herein contained, and intending to
be legally bound hereby, the Company and the Employee hereby agree
as follows:
1. Employment. The Company agrees to employ the Employee,
and the Employee agrees to enter the employ of the Company, for the
period set forth in Paragraph 2, in the positions and with the
duties and responsibilities set forth in Paragraph 3, and upon the
other terms and conditions herein provided.
2. Term. The employment of the Employee by the Company as
provided in Paragraph 1 shall be for a period commencing on June 1,
1996 through and ending on June 1, 1999, unless sooner terminated
as herein provided (the "Employment Term"); provided, however, that
no provision of this Agreement (except for the payment of a
prorated salary under Paragraph 4(a) and the provisions of
Paragraph 8 which are effective as stated therein) shall become
effective if the Company is not successful in raising a minimum of
$9,000,000 in its contemplated registered public offering (the
"Financing Condition"). The Employment Term may be extended for
such additional period as may from time to time be mutually agreed
upon in writing between the parties hereto.
3. Position and Duties.
(a) During the Employment Term, the Employee shall serve
as Chief Executive Officer and President of the Company,
accountable only to the Board of Directors of the Company. In such
capacities, the Employee shall have such duties, functions,
responsibilities and authority customarily appertaining to the
position of chief executive officer and president of a publicly
held corporation of comparable size. The powers and authority of
the Employee as Chief Executive Officer and President of the
Company shall be superior to those of any other officer or employee
of the Company or any of its subsidiaries.
(b) During the Employment Term, the Employee shall
devote his full time, skill and attention and his best efforts
during normal business hours to the business and affairs of the
Company to the extent necessary to discharge faithfully and
efficiently the duties and responsibilities delegated and assigned
to the Employee herein or pursuant hereto, except for usual,
ordinary and customary periods of vacation and absence due to
illness or other disability. The foregoing shall not be construed
as preventing the Employee from making investments in other
businesses or enterprises provided such investments do not require
the provision of substantial services by the Employee to the
operations or affairs of such businesses or enterprises
-1-
<PAGE>
such that the provision thereof would interfere in any respect with
the performance of the Employee's duties and responsibilities
hereunder. Specifically, the Company acknowledges that Employee
may continue his investment activities in the Lazy "JL" Field in
Garza County, Texas and the Viejos Field, in Pecos County, Texas.
(c) Beginning with the Company's 1996 Annual Meeting of
Shareholders, during the Employment Term, the Company shall cause
the Employee to be nominated for election as a director of the
Company at each annual (or special meeting in lieu of the annual)
meeting of shareholders of the Company and shall use its best
efforts, consistent with its fiduciary responsibilities to the
shareholders of the Company, to cause the election and retention of
the Employee as a director of the Company.
(d) In connection with the Employee's employment by the
Company under this Agreement, and beginning on the effective date
of this Agreement, the Employee shall be based at the principal
executive offices of the Company in Dallas, Texas, except for such
reasonable travel as the performance of the Employee's duties in
the business of the Company may require.
4. Compensation and Related Matters.
(a) Base Salary. During the Employment Term, the
Company shall pay to the Employee for his services hereunder a base
salary ("Base Salary") at the rate of not less than $140,000 per
year, payable in installments in accordance with the general
payroll practices of the Company in effect at the time such payment
is made, but in no event less frequently than twice monthly;
provided however, that if this Agreement does not become effective
because the Company is not successful in satisfying the Financing
Condition, Employee shall be paid an amount equal to a prorated
salary from June 1, 1996 through the date the Board of Directors
determines in its reasonable discretion that the Company will not
be successful in satisfying the Financing Condition. The
Employee's Base Salary shall be subject to such adjustments as may
be determined from time to time by the Board of Directors of the
Company in its sole discretion, but in no event shall the Company
pay the Employee a Base Salary at a rate less than that set forth
in the first sentence in this paragraph.
(b) Bonuses. In addition to Base Salary, the Employee
shall be entitled to receive during the Employment Term such
bonuses or other discretionary compensation payments, if any, as
the Board of Directors of the Company may determine to award him
from time to time. Any such bonuses or other discretionary
compensation payments shall be payable to the Employee in the
manner specified by the Board of Directors at the time any such
bonus or other payment is awarded.
(c) Employee Benefits. During the Employment Term, the
Employee shall be entitled to participate in all employee benefit
plans, programs and arrangements (including, without limitation,
any pension, profit sharing, savings, retirement, incentive
compensation, bonus, stock option, stock purchase, life insurance,
medical, dental, accident and disability plans, programs and other
arrangements, if any) provided by the Company from time to time to
its employees generally, subject to and on a basis consistent with
the terms, conditions and overall administration (including
eligibility and vesting requirements) of such plans, programs and
arrangements.
-2-
<PAGE>
(d) Expenses. During the Employment Term, the Employee
shall be entitled to receive prompt reimbursement for all
reasonable expenses incurred by the Employee in performing his
duties and responsibilities hereunder upon the presentation by the
Employee of an itemized monthly accounting of such expenditures,
including receipts where required by federal income tax
regulations.
(e) Moving Expenses. The Employee shall be entitled to
receive prompt reimbursement for all reasonable moving expenses
incurred in relocating from Midland to Dallas, Texas, including
realtor commissions incurred in selling his residence in Midland,
Texas, upon the presentation by the Employee of receipts for such
expenses.
(f) Vacations. During the Employment Term, the Employee
shall be entitled to paid vacations (of not less than four weeks
per year) and such other paid absences, whether for holidays,
illness, personal time, or any similar purposes, in accordance with
the policies, practices and procedures of the Company from time to
time in effect, commensurate with the Employee's position and at
least comparable to those received by any other executive of the
Company. The Employee agrees to utilize his vacation at such time
or times as are (i) consistent with the proper performance of his
duties and responsibilities hereunder and (ii) mutually convenient
for the Company and the Employee.
5. Stock Options.
(a) Amendment of Stock Option Plan. No later than the
date necessary for presentment at the Company's 1996 Annual Meeting
of Shareholders, the Board of Directors of the Company shall amend
the Company's employee stock option plan (the "Plan") to increase
the number of shares of Company common stock, par value $.01 per
share ("Common Stock"), subject to the grant of options thereunder
from 1,000,000 shares to 2,000,000 shares. The Company shall
submit the Plan, as amended, for approval by its shareholders at
the Company's 1996 Annual Meeting of Shareholders. The Company
shall (i) recommend at such meeting that the shareholders of the
Company vote to approve the Plan, as amended, (ii) use its
reasonable best efforts to solicit from shareholders of the Company
proxies in favor of such approval, and (iii) take all other action
reasonably necessary to secure a vote of its shareholders in favor
of approval of the Plan, as amended.
(b) Grant of Options Under Plan. Upon the satisfaction
of the Financing Condition and the resulting effectiveness of this
Agreement, the Company shall grant to the Employee, under the Plan,
in addition to any other options for which Employee may be eligible
under any other option plan of the Company, options to purchase an
aggregate of 500,000 shares of the Company's Common Stock, in
accordance with the following terms and conditions:
(i) The purchase price per share of the Common
Stock covered by the options shall be $0.60 per share (prior to the
one-for-five reverse stock split contemplated by the Company).
(ii) The options shall have a 10 year term and
shall be exercisable in whole at any time and in part from time to
time beginning on the date of grant of the options.
-3-
<PAGE>
(iii) The options shall not be transferable except
by will or pursuant to the laws of descent and distribution.
(iv) The options shall consist of a nonqualified
stock option, the terms and conditions of which shall be set forth
in the form of stock option agreement attached hereto as Exhibit A.
(v) The remaining terms of the options shall be in
the discretion of the stock option committee of the Board of
Directors of the Company, subject to the provisions of the Plan.
(c) Form S-8 Registration. As soon as practicable after
the date of adoption of the Plan by the Board of Directors of the
Company, the Company shall, at its sole expense, file a
registration statement on Form S-8 with the Securities and Exchange
Commission with respect to the shares of Common Stock issuable
pursuant to the Plan, and shall use its best efforts to maintain
the effectiveness of such registration statement (and maintain the
current status of any prospectus contained therein) for so long as
the Plan or any options granted thereunder remain in effect or
outstanding.
6. Termination of Employment.
(a) Death. This Agreement shall terminate automatically
upon Employee's death.
(b) Disability. If the Disability (as defined below) of
the Employee occurs during the Employment Term, the Company may
notify the Employee of the Company's intention to terminate the
Employee's employment hereunder for Disability. In such event, the
Employee's employment hereunder shall terminate effective on the
30th day following the date such notice of termination is received
by the Employee (the "Disability Effective Date"), provided that
the Employee shall not have returned to the full-time performance
of his duties hereunder and performed the same free of any
Disability through such 30-day period. For purposes of this
Agreement, the "Disability" of the Employee shall be deemed to have
occurred if the Employee shall have been unable to perform his
duties hereunder on a full-time basis for 120 consecutive days
(excluding any leaves of absence approved by the Company) as a
result of his physical or mental incapacity.
(c) Termination by Company. The Company may terminate
the Employee's employment hereunder for Cause (as defined below).
For purposes of this Agreement, "Cause" shall mean any of the
following: (i) willful misconduct by the Employee that is
materially and demonstrably detrimental to the Company, monetarily
or otherwise, (ii) conviction of the Employee of a felony, (iii)
Employee's dishonesty or fraud with respect to the business affairs
of the Company or its affiliates, or outside the business affairs
of the Company if such conduct could reasonably be expected to have
a material adverse effect on the Company, (iv) Employee's failure
(after receiving written, detailed notice of such failure and a
reasonable opportunity to cure it) or refusal to perform the
employment duties reasonably assigned to him pursuant to this
Agreement, or (v) a material breach by the Employee of the
Employee's obligations under this Agreement (other than employment
duties or other than as a result of incapacity due to physical
-4-
<PAGE>
or mental illness) and Employee's failure (after receiving written,
detailed notice of such failure and a reasonable opportunity to
cure it) or refusal to cure such breach. Notwithstanding the
foregoing, the Employee shall not be deemed to have been terminated
for Cause without (i) first, reasonable notice to the Employee
setting forth the reasons for the Company's intention to terminate
his employment for Cause and (ii) next, an opportunity for the
Employee, together with his counsel, to be heard before the Board
of Directors of the Company.
(d) Termination following Change of Control. (i)
Notwithstanding anything to the contrary contained herein, should
Employee at any time within 12 months of the occurrence of a
"change of control" (as defined below) cease to be an employee of
the Company (or its successor), by reason of (A) termination by the
Company (or its successor) other than for Cause or (B) voluntary
termination by Employee for "good reason upon change of control"
(as defined below), then in any such event, the Company shall pay
Employee, within 45 days of the severance of employment described
in this Section 6(d), a lump-sum payment in cash in an amount equal
to (without discounting to present value) his then effective base
salary under Section 4(a) hereof for the remainder of the
Employment Term of this Agreement.
(ii) Employee shall be entitled to the payment set
forth in Section 6(d)(i) above, regardless of whether or not that
payment, when aggregated with all payments to Employee (whether
pursuant to this Agreement or any other agreement, plan, program or
benefit arrangement whatsoever) paid contingent on a change of
control as defined in this Section 6(d) exceeds, in aggregate, the
maximum amount that could be paid to Employee, without triggering
an excess parachute payment under Section 280G(b) of the Internal
Revenue Code of 1986, as amended (the "Code"), and the resulting
excise tax under Section 4999 of the Code (the "maximum payment
amount"). In determining the amount of any excess parachute
payment within the meaning of Section 280G of the Code, (A) no
portion of the total payments that Employee has irrevocably waived
in writing prior to the date of the payment of benefits under this
Agreement will be taken into account, (B) no portion of the total
payments that nationally recognized tax counsel, selected by the
Company's independent auditors and acceptable to Employee ("Tax
Counsel"), determines not to constitute a "parachute payment"
within the meaning of Section 280G(b)(2) of the Code will be taken
into account, (C) no portion of the total payments that Tax Counsel
determines to be reasonable compensation for services rendered
prior to or after the change of control as provided in Section
280G(b)(4) of the Code will be taken into account, (D) the fair
market value of any noncash benefit or any deferred payment or
benefit included in the total payments will be determined by the
Company's independent auditors as provided in Section 280G(d)(3)
and (E) the amount of any payments under qualified plans shall be
excluded as provided in Section 280G(d)(6) of the Code.
(iii) As used in this Section, voluntary
termination by Employee for "good reason upon change of control"
shall mean (A) removal of Employee from the offices Employee holds
on the first day of the Employment Term, (B) a material reduction
in Employee's authority or responsibility, including, without
limitation, involuntary removal from the Board of Directors, (C)
relocation of the Company's headquarters from the Dallas, Texas
metropolitan area, (D) a reduction in Employee's compensation, or
(E) the Company otherwise commits a material breach of this
Agreement.
-5-
<PAGE>
(iv) As used in this Agreement, a "change of
control" shall be deemed to have occurred if, after the
consummation of the Financing Condition, (A) any "Person" (as such
term is used in Section 13(d) and 14(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), is or becomes a
"beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company
representing more than 30% of the combined voting power of the
Company's then outstanding securities, or (B) at any time during
the 24-month period commencing after a tender offer, merger,
consolidation, sale of assets or contested election, or any
combination of such transactions, individuals who at the beginning
of such period constitute at least a majority of the Company's
Board of Directors cease to be "continuing directors" (meaning
directors of the Company who either were directors prior to such
transaction or who subsequently became directors and whose
election, or nomination for election by the Company's shareholders,
was approved by a vote of at least two-thirds of the directors then
still in office who were directors prior to such transaction), or
(C) the shareholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than
a merger or consolidation that would result in the voting
securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) at
least 60% of the total voting power represented by the voting
securities of the Company or such surviving entity which are
outstanding immediately after such merger or consolidation, or (D)
the shareholders of the Company approve a plan of complete
liquidation of the Company or an agreement of sale or disposition
by the Company of all or substantially all of the Company's assets.
(v) For purposes of this Agreement, the terms
"affiliate" and "affiliates" mean, when used with respect to any
entity, individual, or other person, any other entity, individual,
or other person which, directly or indirectly, through one or more
intermediaries controls, or is controlled by, or is under common
control with such entity, individual or person. The term "control"
and derivations thereof when used in the immediately preceding
sentence means the ownership, directly or indirectly, of 50% or
more of the voting securities of an entity or other person or
possessing the power to direct or cause the direction of the
management and policies of such entity or other person whether
through the ownership of voting securities, by contract or
otherwise.
7. Compliance With Other Agreements.
(a) The Company represents and warrants to the Employee
that the execution, delivery and performance by the Company of this
Agreement have been duly authorized by all necessary corporate
action of the Company and do not and will not conflict with or
result in a violation of any provision of, or constitute a default
under, any contract, agreement, instrument, or obligation to which
the Company is a party or by which it is bound.
(b) The Employee represents and warrants to the Company
that the execution, delivery and performance by the Employee of
this Agreement do not and will not conflict with or result in a
violation of any provision of, or constitute a default under, any
contract, agreement, instrument, or obligation to which the
Employee is a party or by which he is bound.
-6-
<PAGE>
8. Confidentiality. During the Employment Term and for a
period of two years following the termination of the Employment
Term, the Employee shall hold in strict confidence and shall not,
directly or indirectly, disclose or reveal to any person, or use
for his own personal benefit or for the benefit of anyone else, any
trade secrets, confidential dealings, or other confidential or
proprietary information of any kind, nature, or description
(whether or not acquired, learned, obtained, or developed by the
Employee alone or in conjunction with others) belonging to or
concerning the Company, except (i) with thc prior written consent
of the Company duly authorized by its Board of Directors, (ii) in
the course of the proper performance of the Employee's duties
hereunder, or (iii) as required by applicable law or legal process.
The provisions of this Paragraph 8 shall continue in effect
notwithstanding termination of the Employee's employment hereunder
for any reason.
9. Restrictions on Activities. Except as noted in Paragraph
3.(b) Employee agrees during the Employment Term not to compete
with the Company in the ownership, control, management or
participation in oil or gas properties or facilities. It is
further agreed that the Employee will not, directly or indirectly,
on his own behalf or on behalf of any other person or entity,
without the written consent of the Company, utilize any
confidential, proprietary or nonpublic information of the Company
for a period of two years after the termination of his Employment
Term for any reason except termination by the Company without Cause
(or in the case of termination of his employment without Cause, for
as long as the Company discharges its payment obligations under
this Agreement) for the purpose of competing with the Company. In
addition, Employee agrees that during the Employment Term and for
a period of two years after termination of the Employment Term for
any reason except termination by the Company without Cause (or in
the case of termination of his employment without Cause, for as
long as the Company discharges its payment obligations under this
Agreement), he will not, directly or indirectly, on his own behalf
or on behalf of any other person or entity, without the written
consent of the Company solicit for employment or hire any person
who is then employed by the Company (whether such employment is
pursuant to a written contract with the Company or otherwise), or
induce or attempt to induce any such person to leave the employment
of the Company for any reason.
10. Withholding Taxes. The Company shall withhold from any
payments to be made to the Employee hereunder such amounts
(including social security continuations and federal income or
excise taxes) as shall be required by federal, state and local
withholding tax laws.
11. No Effect on Other Contractual Rights. The provisions of
this Agreement, and any payment provided for hereunder, shall not
reduce any amounts otherwise payable to the Employee, or in any way
diminish the Employee's rights as an employee of the Company,
whether existing now or hereafter, under any employee benefit plan,
program, or arrangement or other contract or agreement of the
Company providing benefits to the Employee.
12. Attorneys' Fees and Costs. In the event there is any
litigation between the parties hereto with respect to this
Agreement, the prevailing party in such litigation shall be
entitled to recover all attorneys' fees and costs incurred by such
party in connection with such litigation.
13. Indemnification. The Company shall during the Employment
Term and thereafter without limitation of time, indemnify and
advance expenses to the Employee in connection with
-7-
<PAGE>
Employee's duties and responsibilities hereunder to the fullest
extent permitted by the laws of the State of Texas from time to
time in effect. The provisions of this Paragraph 13 shall continue
in effect notwithstanding termination of the Employee's employment
hereunder for any reason.
14. Injunctive Relief. In recognition of the fact that a
breach by the Employee of any of the provisions of Paragraph 8 or
Paragraph 9 will cause irreparable damage to the Company for which
monetary damages alone will not constitute an adequate remedy, the
Company shall be entitled as a matter of right (without being
required to prove damages or furnish any bond or other security) to
obtain a restraining order, an injunction, or other equitable
relief from any court of competent jurisdiction restraining any
further violation of such provisions by the Employee. Such right
to equitable relief shall not be exclusive but shall be in addition
to all other rights and remedies to which the Company may be
entitled at law or in equity.
15. Survival. Neither the expiration or the termination of
the term of the Employee's employment hereunder shall impair the
rights or obligations of either party hereto which shall have
accrued hereunder prior to such expiration or termination.
16. Notices. All notices and other communications required
or permitted to be given hereunder by either party hereto shall be
in writing and shall be given by hand delivery or by first class
registered or certified United States mail postage prepaid, return
receipt requested, to the party for which intended at the following
addresses (or at such other addresses as shall be specified by the
parties by like notice):
If to the Company, at:
9400 N. Central Expressway, Suite 1209
Dallas, Texas 75231
Attention: Board of Directors
If to the Employee, at:
3601 Trinity Meadows
Midland, Texas 79707
All such notices and other communications shall be effective only
upon receipt by the addressee.
17. Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto concerning the subject matter
hereof and supersedes all prior agreements and understandings, both
written and oral, between the parties with respect to such subject
matter.
18. Binding Effect: Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and
their respective heirs, legal representatives, successors and
assigns; provided, however, that:
(a) the Employee shall not assign or otherwise transfer
this Agreement or any of his rights or obligations hereunder
without the prior written consent of the Company (except
-8-
<PAGE>
that any rights that the Employee may have hereunder at the time of
his death may be transferred by will or pursuant to the laws of
descent and distribution); and
(b) the Company shall not assign or otherwise transfer
this Agreement or any of its rights or obligations hereunder
without the prior written consent of the Employee. Notwithstanding
the foregoing, however, if the Company merges or consolidates with
or into another corporation, or transfers or sells all or
substantially all its assets to a third party, the Company may
assign this Agreement to the party that is the successor to its
business and assets without the consent of the Employee, provided
the Company remains liable hereunder (if the Company survives such
transaction) and such assignee assumes or becomes legally bound to
perform all obligations of the Company hereunder.
19. Amendment. This Agreement may not be modified or amended
in any respect except by an instrument in writing signed by the
party against whom such modification or amendment is sought to be
enforced.
20. Waiver. Any term or condition of this Agreement may be
waived at any time by the party hereto which is entitled to have
the benefit thereof, but such waiver shall only be effective if
evidenced by a written agreement signed by such party, and a waiver
on one occasion shall not be deemed to be a waiver of the same or
any other type of breach on a future occasion. No failure or delay
by a party hereto in exercising any right or power hereunder shall
operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or
the exercise of any other right or power.
21. Severability. If any provision of this Agreement is held
to be unenforceable, (a) this Agreement shall be considered
divisible, (b) such provision shall be deemed inoperative to the
extent it is deemed unenforceable, and (c) in all other respects
this Agreement shall remain in full force and effect; provided,
however, that if any such provision may be made enforceable by
limitation thereof, then such provision shall be deemed to be so
limited and shall be enforceable to the maximum extent permitted by
applicable law.
22. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of
Texas without regard to conflict of law principles.
-9-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to
be executed on its behalf by its duly authorized officer, and the
Employee has executed this Agreement, as of the date first set
forth above.
MINERAL DEVELOPMENT, INC.
By: /s/ David N. Fitzgerald
David N. Fitzgerald
President
"COMPANY"
/s/ Charles W. Gleeson
Charles W. Gleeson
"EMPLOYEE"
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS AND STATEMENTS OF OPERATIONS FOUND ON PAGES 19 AND 20 OF THE COMPANY'S
FORM 10-K FOR THE NINE MONTH TRANSITION PERIOD ENDED DECEMBER 31, 1995, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> APR-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 220,785
<SECURITIES> 0
<RECEIVABLES> 359,546<F1>
<ALLOWANCES> 37,056
<INVENTORY> 0
<CURRENT-ASSETS> 581,524
<PP&E> 5,929,099
<DEPRECIATION> (4,979,936)
<TOTAL-ASSETS> 1,530,687
<CURRENT-LIABILITIES> 861,414
<BONDS> 0
0
0
<COMMON> 33,757
<OTHER-SE> 595,968<F2>
<TOTAL-LIABILITY-AND-EQUITY> 1,530,687
<SALES> 0
<TOTAL-REVENUES> 751,384
<CGS> 0
<TOTAL-COSTS> 1,095,098
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,993
<INCOME-PRETAX> (343,714)
<INCOME-TAX> 0
<INCOME-CONTINUING> (343,714)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (343,714)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> (.10)
<FN>
<F1>Net of allowance
<F2>Capital in excess of par value of 8,844,005 less a deficit in retained earnings
of 8,248,037
</FN>
</TABLE>
