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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDED FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from _____________ to _____________
Commission File Number _____________
POWER EXPLORATION, INC.
(Exact name of Registrant as specified in its charter)
Nevada 84-0811647
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5020 Collinwood, Ste. 201
Fort Worth, Texas 76107
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (817) 377-4464
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 $.02 PER SHARE
(Title of class)
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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-KSB/A or any
amendment of this Form 10-KSB/A. [ ]
The number of shares of Common Stock, par value $.02 per share, of the
Registrant outstanding on September 30, 1998 was 11,060,925. The aggregate
market value of the voting stock held by nonaffiliates (all directors, officers
and 5% or more shareholders are presumed to be affiliates) of the Registrant on
September 30, 1998, was $5,998,307 based on the average of the closing bid and
asked prices per share of the Common Stock on such date.
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TABLE OF CONTENTS
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PART I
ITEM 1. DESCRIPTION OF BUSINESS .............................................. 6
General............................................................... 6
Investment Consideration & Risk ...................................... 9
Factors
Key Personnel ........................................................ 13
Business Strategy .................................................... 13
Recent Developments .................................................. 14
ITEM 2. DESCRIPTION OF PROPERTIES ............................................ 15
Facilities ........................................................... 15
General Description of Oil & Gas Properties .......................... 15
Current Oil & Gas Properties ......................................... 15
Oil & Gas Prospects .................................................. 16
Title to Properties .................................................. 18
Exploration & Development Activities ................................. 18
Operating Activities ................................................. 18
Oil & Natural Gas Reserves ........................................... 19
Drilling Activities .................................................. 19
Products, Markets & Reserves ......................................... 20
ITEM 3. LEGAL PROCEEDINGS .................................................... 21
Current Legal Matters ................................................ 21
Regulation ........................................................... 21
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS .................. 25
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS ............. 25
Market Information ................................................... 25
Shareholders ......................................................... 26
Dividends ............................................................ 26
Selected Financial Data .............................................. 26
ITEM 6. MANAGEMENT'S DISCUSSION & ANALYSIS OR PLAN OF OPERATION .............. 27
Results of Operations ................................................ 27
Liquidity & Capital Resources ........................................ 27
Inflation & Changing Prices .......................................... 28
Year 2000 Compliance ................................................. 28
ITEM 7. FINANCIAL STATEMENTS ................................................. 29
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE ................................................. 60
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT .................... 60
ITEM 10 EXECUTIVE COMPENSATION ............................................... 62
ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT ........................................................... 62
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ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ....................... 63
ITEM 13 EXHIBITS AND REPORTS ................................................. 63
EX-2.1 PLAN OF REORGANIZATION AND CHANGE OF SITUS BY WHICH TITAN ENERGY
CORP., INC. AND POWER EXPLORATION, INC. CHANGES ITS PLACE OF
INCORPORATION. MAY 31, 1998
EX-2.2 AGREEMENT AND PLAN OF MERGER BETWEEN POWER EXPLORATION, INC. (NEVADA)
AND POWER EXPLORATION, INC. (COLORADO). AUGUST 1, 1998
EX-2.3 ARTICLES OF MERGER BETWEEN POWER EXPLORATION, INC. (NEVADA) AND POWER
EXPLORATION, INC. (COLORADO). AUGUST 1, 1998
EX-2.4 ACTION BY INCORPORATOR. ELECTION OF OFFICERS AND DIRECTORS OF POWER
EXPLORATION, INC. (NEVADA). MAY 31, 1998
EX-3.1 ARTICLES OF INCORPORATION OF IMPERIAL ENERGY. DATED OCTOBER 31, 1979.
INCORPORATED BY REFERENCE FROM THE COMPANY'S PREVIOUS SEC FILINGS.
EX-3.2 AMENDMENT TO THE ARTICLES OF INCORPORATION. JUNE 26, 1984.
INCORPORATED BY REFERENCE FROM THE COMPANY'S PREVIOUS SEC FILINGS.
EX-3.3 AMENDMENT TO THE ARTICLES OF INCORPORATION. SEPTEMBER 25, 1996.
INCORPORATED BY REFERENCE FROM THE COMPANY'S PREVIOUS SEC FILINGS.
EX-3.4 MINUTES OF A SPECIAL MEETING OF SHAREHOLDERS OF ISSUER CHANGING NAME
FROM FUNSCAPE CORPORATION TO OIL RETRIEVAL SYSTEMS, INC. DATED MAY 14,
1997. INCORPORATED BY REFERENCE FROM THE COMPANY'S PREVIOUS SEC
FILINGS.
EX-3.5 AMENDMENT TO THE ARTICLES OF INCORPORATION, DATED JUNE 15, 1997,
CHANGING NAME FROM FUNSCAPE CORPORATION TO OIL RETRIEVAL SYSTEMS, INC.
INCORPORATED BY REFERENCE FROM THE COMPANY'S PREVIOUS SEC FILINGS.
EX-3.6 BY LAWS OF THE CORPORATION. INCORPORATED BY REFERENCE FROM THE
COMPANY'S PREVIOUS SEC FILINGS.
EX-3.7 ARTICLES OF INCORPORATION OF POWER EXPLORATION, INC. (NEVADA). DATED
MAY 14, 1998
EX-3.8 BY-LAWS OF POWER EXPLORATION, INC. (NEVADA). DATED JUNE 1, 1998
EX-3.9 MINUTES OF THE ANNUAL MEETING OF THE SHAREHOLDERS OF TITAN ENERGY
CORP. AND POWER EXPLORATION, INC. DATED JULY 24, 1998
EX-3.10 MINUTES OF A SPECIAL MEETING OF THE BOARD OF DIRECTORS IN WHICH
OFFICERS AND DIRECTORS ARE ELECTED, DATED JULY 24, 1998.
EX-4.1 12% CONVERTIBLE DEBENTURES, WITH CONVERSION RIGHTS BASED UPON 80% OF
MARKET PRICE AT DATE OF CONVERSION. INCORPORATED BY REFERENCE FROM THE
COMPANY'S PREVIOUS SEC FILINGS.
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EX-10.1 CONTRACT FOR ACQUISITION OF OIL RETRIEVAL SYSTEMS, INC. DATED MAY 16,
1997. INCORPORATED BY REFERENCE FROM THE COMPANY'S PREVIOUS SEC
FILINGS.
EX-10.2 CONTRACT FOR ACQUISITION OF OIL LEASES IN THE CORSICANA OIL FIELD,
DATED JUNE 11, 1997. INCORPORATED BY REFERENCE FROM THE COMPANY'S
PREVIOUS SEC FILINGS.
EX-10.3 LETTER AGREEMENT WITH PROMISSORY NOTE BETWEEN ISSUER AND M. PATTON
HOLDINGS, LTD., RE OIL SEEPS, INC., DATED JUNE 17, 1997, ACQUIRING
RIGHTS IN EROMANGA BASIN IN AUSTRALIA. INCORPORATED BY REFERENCE FROM
THE COMPANY'S PREVIOUS SEC FILINGS.
EX-10.4 LETTER OF INTENT DATED AUGUST 11, 1997, BETWEEN ISSUER AND POWER
EXPLORATION COMPANY, INC., GOVERNING THE ACQUISITION OF OIL AND GAS
LEASES IN POLK COUNTY, TEXAS. INCORPORATED BY REFERENCE FROM THE
COMPANY'S PREVIOUS SEC FILINGS.
EX-10.5 CONTRACT WITH POWER EXPLORATION, TECHSTAR EXPLORATION AND
ROEMER-SWANSON ENERGY TO ACQUIRE MINERAL LEASES IN POLK COUNTY, TEXAS,
DATED DECEMBER 2, 1997. INCORPORATED BY REFERENCE FROM THE COMPANY'S
PREVIOUS SEC FILINGS.
EX-10.6 AUTHORITY TO PROSPECT FOR PETROLEUM (ATP-615) IN THE EROMANGA BASIN,
AND COVERING 12,904,618 ACRES IN AUSTRALIA. INCORPORATED BY REFERENCE
FROM THE COMPANY'S PREVIOUS SEC FILINGS.
EX-10.7 AGREEMENT WITH BENCHMARK EQUITIES FOR $500,000 LINE OF CREDIT, DATED
MAY 7, 1998. INCORPORATED BY REFERENCE FROM THE COMPANY'S PREVIOUS SEC
FILINGS.
EX-10.8 AGREEMENT WITH COLDWATER CAPITAL, EFFECTIVE JUNE, 1998, FOR THE
PROVISION OF $2,000,000 LOAN TO BE UTILIZED TO INITIATE THE RECOVERY
PROJECT ON THE CORSICANA FIELD. INCORPORATED BY REFERENCE FROM THE
COMPANY'S PREVIOUS SEC FILINGS.
EX-10.9 AGREEMENT WITH M.O. RIFE IV FOR A $50,000 LOAN DATED APRIL 7, 1998,
WITH EXTENSION AGREEMENT DATED OCTOBER 5, 1998.
EX-10.10 AGREEMENT WITH THE BANK OF COMMERCE FOR A $100,000 LINE OF CREDIT
DATED JULY 27, 1998.
EX-10.11 AGREEMENT WITH THE ZOUVAS FAMILY TRUST FOR A $100,000 LOAN DATED
AUGUST 13, 1998
EX-10.12 AGREEMENT WITH BUSINESS EXCHANGE INVESTMENTS, INC. FOR A $250,000 LOAN
DATED SEPTEMBER 15, 1998
EX-10.13 AGREEMENT WITH THE DALLAS CADY FAMILY, LLP FOR A $50,000 LOAN SECURED
BY TWO 1988 KENWORTH TRUCKS DATED SEPTEMBER 15, 1998
EX-10.14 AGREEMENT WITH TRIDENT III,LLC FOR A $250,000 LOAN DATED OCTOBER 21,
1998, WITH PROMISSORY NOTE
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EX-10.15 AGREEMENT OF SALE AND PURCHASE WITH MB EXPLORATION, LLC DATED DECEMBER
15, 1998
EX-10.16 AMENDMENT TO SALE AND PURCHASE AGREEMENT WITH MB EXPLORATION, LLC,
DATED DECEMBER 15, 1998
EX-16.1 LETTER DATED JUNE 8, 1998 FROM TERRENCE J. DUNNE, CPA CONCERNING
CHANGE OF ACCOUNTANTS AND STATING NO DISAGREEMENTS WITH ISSUER.
INCORPORATED BY REFERENCE FROM THE COMPANY'S PREVIOUS SEC FILINGS.
EX-21.1 SUBSIDIARIES OF THE ISSUER. INCORPORATED BY REFERENCE FROM THE
COMPANY'S PREVIOUS SEC FILINGS.
EX-99.1 OIL LEASE INFORMATION PER INDUSTRY GUIDE FOR CORSICANA FIELD NEAR
DALLAS, TEXAS. INCORPORATED BY REFERENCE FROM THE COMPANY'S PREVIOUS
SEC FILINGS.
EX-99.2 OIL LEASE INFORMATION PER INDUSTRY GUIDE FOR POLK COUNTY LEASES IN
EAST TEXAS. INCORPORATED BY REFERENCE FROM THE COMPANY'S PREVIOUS SEC
FILINGS.
EX-99.3 GLOSSARY OF SELECTED OIL & GAS TERMS
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POWER EXPLORATION, INC.
FORWARD-LOOKING STATEMENTS
THIS ANNUAL REPORT ON FORM 10-KSB/A INCLUDES "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND SECTION 21E OF THE SECURITIES EXCHANGE ACT
OF 1934, AS AMENDED (THE "EXCHANGE ACT"), WHICH CAN BE IDENTIFIED BY THE USE OF
FORWARD-LOOKING TERMINOLOGY SUCH AS, "MAY," "BELIEVE," "EXPECT," "INTEND,"
"ANTICIPATE," "ESTIMATE" OR "CONTINUE" OR THE NEGATIVE THEREOF OR OTHER
VARIATIONS THEREON OR COMPARABLE TERMINOLOGY. ALL STATEMENTS OTHER THAN
STATEMENTS OF HISTORICAL FACT INCLUDED IN THIS FORM 10-KSB/A, INCLUDING WITHOUT
LIMITATION, THE STATEMENTS UNDER "BUSINESS," "PROPERTIES," "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --LIQUIDITY AND CAPITAL RESOURCES" AND "MARKET FOR THE REGISTRANT'S COMMON
EQUITY AND RELATED SHAREHOLDER MATTERS" LOCATED ELSEWHERE HEREIN REGARDING THE
FINANCIAL POSITION AND LIQUIDITY OF POWER EXPLORATION, INC. ("POWER"), THE
VOLUME OR DISCOUNTED PRESENT VALUE OF ITS OIL AND NATURAL GAS RESERVES, ITS
ABILITY TO SERVICE ITS INDEBTEDNESS, ITS STRATEGIC PLANS INCLUDING ITS ABILITY
TO LOCATE AND COMPLETE ACQUISITIONS OF OIL AND NATURAL GAS ASSETS, ITS ABILITY
TO LIST ITS STOCK ON THE OVER THE COUNTER ELECTRONIC BULLETIN BOARD (OTC-EBB)
AND OTHER MATTERS, ARE FORWARD-LOOKING STATEMENTS. ALTHOUGH POWER BELIEVES THAT
THE EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, IT
CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO HAVE BEEN CORRECT.
IMPORTANT FACTORS WITH RESPECT TO ANY SUCH FORWARD-LOOKING STATEMENTS, INCLUDING
CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM POWER'S EXPECTATIONS ("CAUTIONARY STATEMENTS") ARE DISCLOSED IN
THIS FORM 10-K, INCLUDING, WITHOUT LIMITATION, IN CONJUNCTION WITH THE
FORWARD-LOOKING STATEMENTS INCLUDED IN THIS FORM 10-KSB/A. IMPORTANT FACTORS
THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN THE
FORWARD-LOOKING STATEMENTS HEREIN INCLUDE, BUT ARE NOT LIMITED TO, THE TIMING
AND EXTENT OF CHANGES IN COMMODITY PRICES FOR OIL AND NATURAL GAS, THE NEED TO
DEVELOP AND REPLACE RESERVES, ENVIRONMENTAL RISKS, DRILLING AND OPERATING RISKS,
RISKS RELATED TO EXPLORATION AND DEVELOPMENT, UNCERTAINTIES ABOUT THE ESTIMATES
OF RESERVES, COMPETITION, GOVERNMENT REGULATION AND THE ABILITY OF POWER
EXPLORATION, INC. TO MEET ITS STATED BUSINESS GOALS. ALL SUBSEQUENT WRITTEN AND
ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO POWER OR PERSONS ACTING ON ITS
BEHALF ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
POWER, along with its wholly owned subsidiaries, is a developmental
global resource company engaged in oil and gas exploration. In addition to
exploration and development of new properties, POWER redevelops currently
producing oil and gas fields, and researches and develops exploration and
recovery
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technologies, including the manufacture of new, cutting-edge oil recovery
equipment. (See "Glossary of Selected Oil and Natural Gas Terms" for a
definition of certain oil and gas industry terms used in this Form 10-KSB/A.)
During its history, POWER has changed its name several times. At
different times POWER has been known as Imperial Energy Corp., Funscape Corp.,
Oil Retrieval Systems, Inc., and Titan Energy Corp. In this report, all of these
entities shall be referred to as POWER.
POWER focuses its exploration on its significant holdings in Texas and
Australia. The Company is developing production recovery of existing fields in
Corsicana, Texas and other areas of the region where fields have been depleted
by conventional lifting methods, but where significant, proven reserves of oil
still remain. Utilizing the latest technology, these fields can become
commercially viable and provide long-term revenue streams. POWER also has plans
to utilize new technology in its primary exploration efforts, especially related
to its Australian concession and the East Texas basin.
POWER has identified two hydrocarbon detection exploration methods that
have consistently delivered strong results. These technologies could
significantly reduce the risk associated with exploration thereby creating
greater economic potential. They have both been extensively tested and
analogized against producing fields to verify accuracy.
Additional recovery methods to be employed by POWER have also yielded
positive results in recent application tests. The first process involves the use
of a controlled, under-balanced horizontal drilling technique in retrieving
secondary production from fields whose depletion curves have flattened. This
process has been used extensively in the higher-pressure environments, like the
Austin-Chalk, however it has not been widely applied to shallow depth, depleted
reservoirs.
A supplemental process to the horizontal drilling methods described
above is the use of an alkaline-surfactant aided polymer flood. Water floods
have been the predominate method for retrieving oil from depleted fields. A
polymer flood builds a wall, which coupled with the alkaline-surfactant, helps
"push" oil from the reservoir into the well bore. The spacing and permeability
characteristics of POWER's Corsicana field are prime candidates for this
process. The presence of the horizontal well creates a larger well bore in which
fluid (oil) can enter and can increase production ten fold to that of a vertical
well.
After being a small energy company for a number of years and prior to
the acquisition of its core businesses, POWER had no meaningful financial
presence and was inactive with respect to generating income. Prior to its
acquisition of the core businesses, POWER had total assets of less than $10,000.
Net income for the year ending September 30, 1996 was $0.
POWER's business activity has stagnated due to current limited capital
resources and cash flow. The company is currently seeking financing that will
provide adequate capitalization.
POWER was originally incorporated in the State of Colorado on October
31, 1979, under the name of Imperial Energy Corp. for the primary purpose of
engaging in all aspects of the exploration and development of oil, gas and
related natural resources. Imperial went public pursuant to the Registration
provisions of the Securities Act of 1933. Imperial prepared a Registration under
Form S-2 which became effective on August 8, l980 and raised the sum of
$1,500,000 by selling 15,000,000 shares of no par common stock. On June 26,
1984, POWER had a 10 to 1 reverse split and reduced the number of authorized
common shares from 50,000,000 no-par value shares to 5,000,000 shares of $.02
par value.
For years, POWER had a royalty interest in a small oil well in Texas
and an ownership in three small natural gas wells located in Wyoming. POWER
abandoned these wells in 1996.
On September 25, 1996, POWER entered into agreements to acquire
Funscape Corp. (a Nevada Corporation). On November 21, 1996, POWER filed amended
articles of incorporation in order to change its name to Funscape Corp. and
increased the authorized number of shares from 5,000,000 shares of $.02
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par value to 15,000,000 shares of $.02 par value. Subsequently, those agreements
to acquire Funscape (Nevada) were not consummated and were canceled.
On May 16, 1997 POWER acquired Oil Retrieval Systems, Inc. and its
portable swabbing technology, assets and liabilities from Rife Oil Properties,
Inc. for 2,500,000 shares of POWER 's restricted common stock. On May 14, 1997
POWER changed its name from Imperial Energy to Oil Retrieval Systems, Inc.
(Colorado).
On June 11, 1997 Oil Retrieval Systems, Inc. acquired 650 oil wells,
each approximately 800' to 1000' deep, situated on 4,500 acres of leases in the
Corsicana Field, Texas from Rife Oil Properties for 2,000,000 shares of
restricted common stock and a convertible promissory note for $1,300,000,
bearing 6% interest per annum and due on November 11, 1997. The note was secured
by 1,000,000 shares of newly-issued common stock of ORS and held by an attorney
as Trustee. The note for $1,300,000 plus $43,381 in accrued interest was
satisfied on December 15, 1997 by agreement of the parties, with the shares of
restricted stock which were held in escrow.
On June 15, 1997 pursuant to Shareholder approval, POWER amended its
articles of incorporation and changed its name from Oil Retrieval Systems to
Titan Energy Corp., Inc.
On June 17, 1997 POWER acquired 100% of the issued and outstanding
shares of Oil Seeps, Inc. (a Texas Corporation). Through this acquisition POWER
obtained a Petroleum Exploration Concession (#ATP 615) in the State of
Queensland, Australia, situated on a 12,904,618 acre block. Oil Seeps, Inc. was
acquired for 400,000 shares of restricted common stock.
During July and August 1997, POWER offered $1,250,000 of 12%
Convertible Debentures, in accordance with Regulation D of the Securities Act of
1933, receiving net proceeds of $870,000. The debentures bore interest at 12%
per annum and were due and payable on July 31, 1998 with interest payable
quarterly. The principal amount of the debentures was convertible at the holders
option anytime after 28 days from the closing date into shares of POWER 's
common stock at a conversion price for each share of Issuer common stock equal
to the lower of (a) 80% of the closing bid price of the common stock for the
business day immediately preceding the date of receipt by POWER of a notice of
conversion or (b) 80% of the average of the closing bid price of the common
stock for the 5 business days immediately preceding the closing date.
As of September 30, 1998, these debentures and accrued interest have
been completely converted into 1,674,074 shares of common stock.
On October 22, 1997, POWER sold an additional $250,000 12% Series B
Senior Subordinated Convertible Redeemable Debentures, in accordance with
Regulation S of the Securities Act of 1933. This resulted in gross proceeds of
$200,000 and net proceeds of $176,000.
The Series B debentures bore interest at 12% per annum and were due and
payable on November 30, 1998, if not converted earlier. Interest was payable
quarterly. The principal amount of the debentures was convertible at the
holder's option anytime after 28 days from the closing date into shares of POWER
's common stock at a conversion price for each share of Issuer common stock
equal to the lower of (a) 80% of the closing bid price of the common stock for
the business day immediately preceding the date of receipt by POWER and notice
of conversion or (b) 80% of the average of the closing bid price of the common
stock for the 5 business days immediately preceding the closing date. These
debentures were converted after September 30, 1998; POWER exchanged the $250,000
liability for $150,000 in cash plus 650,000 shares of its common stock. Costs of
$24,000 incurred in connection with the issuance of these debentures are being
amortized over the life of the debentures.
On August 11, 1997, POWER entered into a Letter of Intent with
privately held Power Exploration Company, Inc. ("Power Co") of Tyler, Texas
concerning the acquisition of and/or participation in acquiring Oil and Gas
Leases. On December 2, 1997 POWER entered into a formal agreement with Power Co,
Techstar Exploration, LLC and Roemer-Swanson Energy Corp. to acquire oil and gas
leases in
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the prolific East Texas Basin for future exploration purposes. Through this
venture, POWER acquired 1,888 net acres under lease. In addition, POWER
participated in a joint venture to drill the Champion G8 well with
Roemer-Swanson Energy, Blackstone Energy, and Kensington Exploration. While the
well produced some intriguing shows, it was eventually classified as a dry hole.
POWER's total investment in the G8 well amounted to $81,716.
On May 7, 1998, POWER secured a Five Hundred Thousand-dollar
($500,000.00) line of credit from Benchmark Equity Group. The majority
shareholder provided shares of its stock as collateral. Additionally, Titan
executed a Loan Agreement and Security Agreement. On October 8, 1998, POWER
issued 500,000 shares of its common stock in satisfaction of this loan and
accrued interest.
On July 24, 1998 POWER's shareholders voted to amend the corporation's
Articles of Incorporation to change its name from Titan Energy Corporation to
Power Exploration, Inc. This followed the decision by the board, which was
ratified by shareholders, to acquire certain assets of Power Co. for a total of
two million common shares. Separately, the company's shareholders voted to
change the company's domicile from the state Colorado to the state of Nevada.
As of September 30, 1998, POWER had not completed the acquisition of
the certain assets of Power Co., and the 2,000,000 shares of stock are held in
trust. It is expected that a letter of agreement will be signed and the
acquisition completed during the first quarter of 1999.
INVESTMENT CONSIDERATIONS AND RISK FACTORS
Financing
POWER has devised a two-stage financing program to achieve its goals
and financial forecasts. In the first stage, POWER will require approximately $3
million and in the second stage will require an additional $7 million. The
financing is expected to be secured through joint venture participations for
specific purposes.
The use of proceeds from the initial financing effort will be allocated
among the various projects described above, as follows: $1.2 million for the
Corsicana Project; $800,000 for the Australian project; $500,000 for working
capital associated with Oil Retrieval Systems, Inc.; and $500,000 for general
and administrative purposes of POWER.
(See "Management's Discussion and Analysis of Financial Position and Results of
Operations -- Liquidity and Capital Resources.")
History of Losses
POWER had net losses of $628,961 and $2,695,817, for the years
ended September 30, 1997 and 1998, respectively. POWER may continue to incur net
losses and, to the extent that natural gas and crude oil prices remain low, such
losses may be substantial.
Need for Additional Financing for Growth
The growth of POWER's business will require substantial capital
initially, and there is no assurance that any such required additional capital
will be available. POWER's ability to meet any future debt service obligations
will be dependent upon POWER's future performance, which will be subject to oil
and natural gas prices, POWER's level of production, general economic conditions
and financial, business and other factors affecting the operations of POWER,
many of which are beyond its control. There can be no assurance that POWER's
future performance will not be adversely affected by such changes in oil and
natural gas prices and/or production nor by such economic conditions and/or
financial, business and other factors. In addition, there can be no assurance
that POWER's business will generate sufficient cash flow from operations or that
future bank credit will be available in an amount to enable POWER to service its
indebtedness or make necessary expenditures. In such event, POWER would be
required to obtain such
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financing from the sale of equity securities or other debt financing. There can
be no assurance that any such financing will be available on terms acceptable to
POWER. Should sufficient capital not be available, POWER may not be able to
continue to implement its business strategy.
There is also no assurance that POWER will not pursue, from time to
time, opportunities to acquire oil and natural gas properties and businesses
that may utilize the capital currently expected to be available for its present
operations. The amount and timing of POWER's future capital requirements, if
any, will depend upon a number of factors, including drilling costs,
transportation costs, equipment costs, marketing expenses, staffing levels and
competitive conditions, and any purchases or dispositions of assets, many of
which are not within POWER's control. Failure to obtain any required additional
financing could materially adversely affect the growth, cash flow and earnings
of POWER. In addition, POWER's pursuit of additional capital could result in the
incurrence of additional indebtedness or potentially dilutive issuances of
additional equity securities. (See "Management's Discussion and Analysis of
Financial Position on Results of Operations -- Liquidity and Capital
Resources.")
Concentration of Production
POWER's existing proved producing oil and natural gas reserves and its
production therefrom are located in a single field which consists of 4,500 acres
and contains 650 wells.. Accordingly, to the extent that POWER experiences any
operating difficulties in connection with such wells or that the estimated
proved reserves attributable thereto are less than those that are currently
estimated to exist, POWER could be adversely affected.
Geographic Restrictions
There are no geographic restrictions that would prevent POWER from
acquiring or seeking to acquire any rights or interest in any properties.
Inability to Develop Additional Reserves
POWER's future success as an oil and natural gas producer, as is
generally the case in the industry, depends upon its ability to find, develop
and acquire additional oil and natural gas reserves that are economically
recoverable. Except to the extent that POWER conducts successful development
activities or acquires properties containing proved reserves, POWER's proved
reserves will generally decline as reserves are produced. There can be no
assurance that POWER will be able to locate additional reserves or that POWER
will drill economically productive wells or acquire properties containing proved
reserves. (See "-- Oil and Natural Gas Prospects.")
Acquisition Risks
POWER's business strategy includes focused acquisitions of producing
oil and natural gas properties. Any such future acquisitions will require an
assessment of the recoverable reserves, future oil and natural gas prices,
operating costs, potential environmental and other liabilities and other similar
factors. It generally is not feasible to review in detail every individual
property involved in an acquisition. Ordinarily, review efforts are focused on
the higher-valued properties. However, even a detailed review of all properties
and records may not reveal existing or potential problems; nor will it permit
POWER to become sufficiently familiar with the properties to assess fully their
deficiencies and capabilities. Inspections are not always performed on every
well, and potential problems, such as mechanical integrity of equipment and
environmental conditions that may require significant remedial expenditures, are
not necessarily observable even when an inspection is undertaken. Even if
problems are identified, the seller may be unwilling or unable to provide
effective contractual protection against all or part of such problems. There can
be no assurance that oil and natural gas properties acquired by POWER will be
successfully integrated into POWER's operations or will achieve desired
profitability objectives.
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<PAGE> 11
Drilling Risks
POWER's drilling involves numerous risks, including the risk that no
commercially productive natural gas or oil reservoirs will be encountered. POWER
must incur significant expenditures for the identification and acquisition of
properties and for the drilling and completion of wells. The cost of drilling,
completing and operating wells is often uncertain, and drilling operations may
be curtailed, delayed or canceled as a result of a variety of factors, including
unexpected drilling conditions, pressure or irregularities in formations,
equipment failures or accidents, weather conditions and shortages or delays in
the delivery of equipment. In addition, any use by POWER of 3-dimensional
seismic and other advanced technology requires greater pre-drilling expenditures
than traditional drilling strategies. There can be no assurance as to the
success of POWER's future drilling activities.
Uncertainty of Estimates of Oil and Natural Gas Reserves
Numerous uncertainties are inherent in estimating quantities of proved
oil and natural gas reserves, including many factors beyond the control of
POWER. This Form 10-KSB/A contains an estimate of POWER's proved oil and natural
gas reserves and the estimated future net cash flows and revenue therefrom based
upon reports of POWER's independent petroleum engineers (Ultra Engineering).
Such reports rely upon various assumptions, including assumptions required by
the Securities and Exchange Commission (the "Commission"), as to constant oil
and natural gas prices, drilling and operating expenses, capital expenditures,
taxes and availability of funds and such reports should not be construed as the
current market value of the estimated proved reserves. The process of estimating
oil and natural gas 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 and the future net revenue therefrom. Actual
future production, revenue, taxes, development expenditures, operating expenses
and quantities of recoverable oil and natural gas 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 Form 10-KSB/A. In addition, POWER's reserves may be
subject to downward or upward revision, based upon production history, results
of future exploration and development, prevailing oil and natural gas prices and
other factors. (See "-- Oil and Natural Gas Reserves.")
Geographic Concentration of Operations
Virtually all of POWER's current operations are located in Texas and
Australia. Because of this concentration, any regional events that increase
costs or competition, reduce availability of equipment or supplies, reduce
demand or limit production will impact POWER more adversely than if POWER were
geographically diversified.
Certain Industry and Marketing Risks
POWER's operations are subject to the risks and uncertainties
associated with drilling for, producing and transporting of oil and natural gas.
POWER's future ability to market its natural gas and oil production will depend
upon the availability and capacity of natural gas gathering systems and
pipelines and other transportation facilities. Federal and state regulation of
oil and natural gas production and transportation, general economic conditions,
changes in supply and in demand all could materially adversely affect POWER's
ability to market its oil and natural gas production.
Effects of Changing Prices
The future financial condition and results of operations of POWER
depend upon the prices it receives for its oil and natural gas and the costs of
acquiring, developing and producing oil and natural gas. Oil and natural gas
prices have historically been volatile and are subject to fluctuations in
response to changes in supply, market uncertainty and a variety of additional
factors that are also beyond POWER's control. These factors include, without
limitation, the level of domestic production, the availability of imported oil
and natural gas, actions taken by foreign oil and natural gas producing nations,
the availability
Page 9 of 58
<PAGE> 12
of transportation systems with adequate capacity, the availability of
competitive fuels, fluctuating and seasonal demand for natural gas, conservation
and the extent of governmental regulation of production, weather, foreign and
domestic government relations, the price of domestic and imported oil and
natural gas, and the overall economic environment. A substantial or extended
decline in oil and/or natural gas prices could have a material adverse effect on
POWER's estimated value of its natural gas and oil reserves, and on its
financial position, results of operations and access to capital. POWER's ability
to maintain or increase its borrowing capacity, to repay current or future
indebtedness and to obtain additional capital on attractive terms is
substantially dependent upon oil and natural gas prices.
POWER uses the full cost method of accounting for its investment in oil
and gas properties. Under the full cost method of accounting, all costs of
acquisition, exploration and development of oil and gas reserves are capitalized
into a "full cost pool" as incurred, and properties in the pool are depleted and
charged to operations using the unit-of-production method based on the ratio of
current production to total proved oil and gas reserves. To the extent that such
capitalized costs (net of accumulated depreciation, depletion and amortization)
less deferred taxes exceed the SEC PV-10 (present value discounted at 10% as
dictated by the SEC) of estimated future net cash flow from proved reserves of
oil and gas, and the lower of cost or fair value of unproved properties after
income tax effects, such excess costs are charged against earnings. Once
incurred, a write-down of oil and gas properties is not reversible at a later
date even if oil or gas prices increase.
Operating Hazards and Uninsured Risks
POWER's operations are subject to the risks inherent in the oil and
natural 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, brine or well fluids
into the environment (including groundwater contamination). The occurrence of
any of these risks could result in substantial losses to POWER 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, POWER maintains
insurance against some, but not all, of the risks described above. There can be
no assurance that any insurance maintained by POWER will be adequate to cover
any such losses or liabilities. Further, POWER cannot predict the continued
availability of insurance, or availability at commercially acceptable premium
levels. POWER does not carry business interruption insurance. Losses and
liabilities arising from uninsured or under-insured events could have a material
adverse effect on the financial condition and operations of POWER. From time to
time, due primarily to contract terms, pipeline interruptions or weather
conditions, the producing wells in which POWER owns an interest have been
subject to production curtailments. The curtailments range from production being
partially restricted to wells being completely shut-in. The duration of
curtailments varies from a few days to several months. In most cases POWER is
provided only limited notice as to when production will be curtailed and the
duration of such curtailments. POWER is not currently experiencing any material
curtailment on its production.
Substantial Competition
The oil and natural gas industry is highly competitive and there are
many other companies engaged in the oil and natural gas business. POWER is
likely to encounter substantial competition from major oil companies, other
independent oil and natural gas concerns and individual producers and operators
in acquiring oil and natural gas properties suitable for exploration and
development. Many of the companies with which POWER competes have substantially
greater financial, technical and other resources and may have greater experience
in the oil and natural gas business than POWER. Therefore, competitors may be
able to pay more for desirable leases and to evaluate, bid for and purchase a
greater number of properties or prospects than the financial or personnel
resources of POWER will permit.
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<PAGE> 13
Volatility of Stock Price
The market price for shares of the Common Stock has varied
significantly and may be volatile depending on news announcements or changes in
general market conditions. In particular, news announcements, quarterly results
of operations, competitive developments, litigation or governmental regulatory
action impacting POWER may adversely affect the Common Stock price. In addition,
because the number of shares of Common Stock held by the public is relatively
small, the sale of a substantial number of shares of the Common Stock in a short
period of time could adversely affect the market price of the Common Stock.
Dividend Policy
POWER has never paid cash dividends on its Common Stock and does not
anticipate paying cash dividends on its Common Stock in the next year. The
company plans on paying dividends as it becomes more profitable, but until this
occurs, POWER's Common Stock is not a suitable investment for persons requiring
current income.
Anti-Takeover Effect of Articles of Incorporation and Possible
Issuances of Preferred Stock
Certain provisions of POWER's Restated Articles of Incorporation as amended at
the July 24, 1998 stockholder's meeting (the "Articles of Incorporation") may
delay, defer or prevent a tender offer or takeover attempt that a shareholder
might consider to be in such shareholder's best interest, including attempts
that might result in a premium over the market price for the stock held by
shareholders. The Articles of Incorporation permit the Board to issue up to
10,000,000 shares of preferred stock and to establish by resolution one or more
series of preferred stock and to establish the powers, designations, preferences
and relative, participating, optional or other special rights of each series of
preferred stock. The preferred stock could be issued on terms that are
unfavorable to the holders of Common Stock, including the grant of superior
voting rights, the grant of preferences in favor of preferred shareholders in
the payment of dividends and upon liquidation of POWER and the designation of
conversion rights that entitle holders of preferred stock to convert their
shares into Common Stock on terms that are dilutive. The issuance of preferred
stock could make a takeover or change in control of POWER more difficult. POWER
however does not intend to use the provisions of the Articles of Incorporation
to delay, defer or prevent a tender offer or takeover attempt.
KEY PERSONNEL
POWER is substantially dependent upon five key individuals within its
management, Guy Pyron, M.O. Rife III, Joe Bennett, Jack Gallacher, and Mark
Zouvas. The loss of the services of any one of these individuals could have a
material adverse impact upon POWER.
BUSINESS STRATEGY
POWER intends to build itself as a leading independent oil and natural
gas exploration and production company by implementing the following business
strategies:
Growth
Achieve asset, revenue and cash flow growth as a result of the
acquisition and further development of other producing oil and natural gas
properties. POWER believes there are numerous opportunities to acquire
additional energy assets and to enhance the value of such assets through
improved operating practices and by aggressively developing reserve potential.
Acquire and Enhance Producing Oil and Natural Gas Properties
POWER intends to take advantage of opportunities that currently exist
in the United States to acquire producing oil and natural gas properties. POWER
plans to continue to focus its acquisition activities onshore in Texas in order
to complement its existing properties and operations; however,
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<PAGE> 14
POWER will review potential acquisitions in other regions of the United States
if they represent a significant concentration of energy-related assets.
Emphasize Exploration and Development Activities
POWER plans to exploit its existing oil and natural gas properties and
to conduct development evaluation and drilling on its existing and future oil
and natural gas properties. POWER intends to concentrate on enhancement
opportunities from activities such as infill drilling, recompletions, repairs
and equipment changes.
Corporate Efficiencies
Maximize corporate efficiencies through the development and operation
of a larger asset base with the potential to limit increases in overhead in the
future.
Capital Management
Maintain financial strength and flexibility through effective
management of debt and equity.
Technology
POWER intends to increase its exploration efforts, focusing on established
geological trends where POWER can employ geological, geophysical and engineering
expertise. In addition, POWER will employ new technologies that are at its
disposal; these include Electro-Seise(R), which records and models information
derived from electromagnetic wave patterns, and Relucent(R), designed to read
hydrocarbon emissions from a mobile, microwave unit. Both technologies detect
the existence of hydrocarbons within formations. While the oil and gas industry
as a whole has embraced the use of 3-D seismic as a location tool for detecting
reservoir quality formations, it does not provide any clue as to whether
hydrocarbon deposits exist within those formations. The use of Electro-Seise(R)
and Relucent(R) will enhance the Company's primary exploration efforts beyond
the capabilities of conventional location tools used by other firms. POWER will
consider the application of 3-D seismic in areas where POWER believes that it
will be beneficial and cost effective.
POWER will also use advanced drilling technologies where appropriate. POWER
will utilizie three different types of technologies: a drilling technique known
as under balanced drilling (UBD) used in conjunction with horizontal-lateral
drilling, waterflooding, and portable swabbing units. UBD creates an equal
pressure environment within the well bore, which is particularly useful when
pressure is depleted in older reservoir structures. This prevents contamination
of the reservoir by drilling fluids, which would reduce production rates.
In reservoirs that can be waterflooded, the use of
alkaline-surfactant-polymer (ASP) flooding technology can unlock some of the
residual resources. ASP can boost incremental oil recovery of a known resource
in a mature field by up to 30% of the original oil in place (OOIP) at costs that
are more economical than seeking new reserves.
ORS, the company's swabbing rig manufacturing unit produces a truck-mounted
portable swabbing unit which eliminates the need to rig up work-over units and
run tubing, rods, downhole pumps, packers and surface pump jacks, thus requiring
only one person to drive and operate. The units are completely self-contained
with the capacity of up to 80 barrels of oil, enabling the operator to swab
approximately 25 to 35 wells per day. The swabbing procedure takes approximately
10 minutes per well. In comparison, using conventional pump jacks, the same
volume of fluid removal would take 14 to 24 hours and require a near constant
source of electrical power.
RECENT DEVELOPMENTS
East Texas
POWER has acquired approximately 500 square miles of proprietary 3D
seismic data and approximately 16,000 miles of 2D seismic data throughout the
East Texas Basin from MB Exploration,
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<PAGE> 15
LLC of Dallas, Texas. The proprietary 3D seismic data included in this
acquisition previously belonged to Exxon. The acquisition entitles POWER to
participate as a 20% working interest partner in 140,000 net acres in East
Texas.
POWER has also acquired additional prospects to drill in the East Texas
basin. Financing for this drilling program will be provided through a series of
participation arrangements with industry and non-industry investment groups. The
first round of financing will support the exploration of four prospects, two of
which can be considered "wildcats" while the other two are classified as
developmental (located in an area where significant production already exists.)
Aggregate costs for this drilling stage should approximate $3 million.
Discovery Geo
The Company is negotiating the acquisition of Discovery Geo which has
exploration permits ATP-634, ATP-550P, and PEP-38722 located in Australia and
New Zealand. These ATP permits are some of the most highly regarded prospects in
these areas. The hydrocarbon exploration activities of these permits are
concentrated in the two major onshore oil and gas basins of both Australia and
New Zealand. At present, the permits in the Cooper/Eromanga and Taranaki Basins
produce the bulk of the onshore indigenous oil and gas production in these
areas. Power and Discovery Geo are exploring the potential benefits that could
occur from a joint participation.
1998 Annual Shareholders Meeting
POWER held its Annual Meeting held on July 24, 1998. The company's
shareholders voted to amend the corporation's Articles of Incorporation to
change its name from Titan Energy Corporation to Power Exploration, Inc. This
follows the decision by the board, which was ratified by shareholders, to
acquire certain assets of Power Co. for a total of two million common shares.
Separately, the company's shareholders voted to change the company's domicile
from the state of Colorado to the state of Nevada. As a result of the change in
domicile, the following persons were appointed to the board of directors of
Power Exploration., Inc.: M.O. Rife, III, Guy Pyron, Jack Gallacher, Joe B.
Bennett, and Thom Schliem. Shareholders approved the proposal to amend the
Articles of Incorporation and authorized 50 million shares of common stock at
par value of $0.02. The shareholders also approved the proposal to amend the
Articles of Incorporation and approved authorization of 10 million non-voting, 8
percent preferred stock.
ITEM 2. DESCRIPTION OF PROPERTIES
Facilities
POWER leases approximately 2,500 square feet of office space in Fort
Worth, Texas, for its corporate offices. The 90-day lease is for and requires a
monthly rental payment of approximately $2,000. POWER considers this space
adequate for its present needs. In addition, Oil Retrieval Systems, Inc. located
in Fort Worth, Texas is approximately 16,982 SF with a monthly rental of $4,118.
POWER also has a satellite office in Tyler, along with a small field office and
yard in Corsicana, Texas.
General Description of Oil and Gas Properties
The Company has leasehold interests in Corsicana, Texas and in Polk
County, Texas, and it holds an Authority to Prospect (ATP) in Australia. The
Corsicana Field is comprised of 650 existing wells of which the Company has a
leasehold interest in the underground minerals. The Company also has a leasehold
interest in 2,800 net acres located in Polk County, Texas.
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<PAGE> 16
Current Oil and Gas Properties
Polk County
Currently, the Company and its partners have assembled 12,000 net acres
of oil and gas leases in the Woodbine trend for its "Alaska" prospect located in
Polk County, Texas. The Alaska Woodbine Prospect is one of a series of down-dip
sandstone lenses that were deposited just offshore of the massive "Harris" reef,
which was responsible for millions of barrels of oil and commensurate quantities
of gas. Costs, including land, land men, bonus & brokerage, are averaging $150
per acre.
Australia
The Australian concession owned by the Company potentially represents
one of the most lucrative exploration opportunities available in today's market.
Preliminary geological analyses indicate a potentially large natural gas
reserve. Directly north of the ATP 615 concession, a 200 megawatt electricity
generation plant is converting from coal to natural gas, and has thus recently
completed a 12 inch pipeline directly across the Company's lease for
transportation of gas production to this facility. This creates a virtually
unlimited demand for natural gas, and the utility has indicated their intention
to purchase all gas produced by the Company. In addition, the governing
authorities involved are aggressive in promoting oil and gas exploration in
their region, and are thus very accommodating rather than restrictive. The
combination of all these factors creates a very favorable atmosphere for gas
exploration, greatly enhancing the potential for one of the most promising plays
of the decade.
An estimated 50 miles of 2D seismic data will be acquired, with an
approximate total cost of $750,000. Cash requirements for this program will be
staged as areas of interest are identified. Drilling costs are higher in
Australia than in the US due to the limited number of available drilling rigs
and the high cost of mobilization. Therefore, the Company will only mobilize one
rig and continue its usage throughout the first stage of drilling which will
include a total of 12 wells. The Company's financial projections assume a 50%
success rate in this 12 well program; estimated drilling and completion
requirements should total $3,000,000, with production income factored in.
Corsicana
On June 11, 1997 the Company acquired 650 oil wells situated on 4,500
acres of leased land in the Corsicana Field located in Corsicana, Texas. All of
the wells are approximately 800 ft. to 1,000 ft. deep with 84.5 million gross
barrels of oil in place. POWER has split the field into small AMI's (Area of
Mutual Interest) in order to facilitate fund raising for the development of the
field. Through Corsicana Drilling Partners, JV, POWER has already raised
$300,000 of the $500,000 necessary for the first AMI.
A reserve study was performed by Ultra Engineering & Consulting of
Houston, Texas. The study, which was performed as of September 30, 1998,
estimated net reserves of 21,744,477 recoverable barrels of oil. The value of
future cash flows, discounted at 10% to present value, was estimated to be
$63,868,634. At current commodity prices, the estimated future cash flow (not
discounted) is $125 million.
Production from the Corsicana Field has a virtually flat decline curve,
thereby holding the leases for the foreseeable future. The leases carry an
average net revenue interest of 80%.
Oil and Gas Prospects
Glen Rose Q5
The Company is currently developing the Glen Rose Q5 prospect located
in the Manziel Field, Wood County. The "Q5" is considered a developmental
prospect by virtue of its location within the prolific Manziel field. The
Manziel Field is a highly productive structural complex that produces from all
fault blocks in the numerous Cretaceous reservoirs, which include the
Sub-Clarksville, Woodbine, Rodessa,
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<PAGE> 17
Pittsburgh and Travis Peak. This prospect, to date, has produced over 522,000 BO
and 342 MMCF of gas from two wells.
The Q5 prospect totals 158 net acres, with two drilling locations and
an 82% average net revenue interest. Prospect acquisition cost is $40,000. The
estimate to drill a 9,000 ft. test covering all potential zones, including
completion costs and logging, is $500,000. A joint venture arrangement will
finance this project, which will commence drilling the test well in March of
1999.
The Pittman Prospect
The Pittman development prospect is also located in the prolific
Manziel Field in Wood County, Texas. This 220-acre prospect is a development
location 800-ft from a undeveloped 48 ft thick Paluxy oil sand drilled by Texaco
in 1975 at a structurally equivalent position. The offset well encountered
numerous deeper pay zones, but due to mechanical problems in the well,
production was never established in this 48-ft oil zone. Sixty-nine wells have
produced from the Paluxy in Manziel Field since its discovery in 1943. Total
production from the Paluxy is over 22 million BO and 1 BCF, with a average well
producing over 330,000 BO.
The estimated reserves to be recovered from this prospect are 900,000
BO with an initial production rate of 300 BOPD. Estimated cost to drill and
complete is $600,000. If productive, the prospect may allow an additional 1 to 3
wells to be drilled for the Paluxy.
Red Town Ranch
The Red Town Ranch Prospect, located in the central area of the East
Texas Basin, is a low-cost drilling opportunity to discover sizeable oil & gas
reserves by exploiting potential traps in a region known for high-volume
hydrocarbon migration and production. This prospect has two primary drilling
formations as its objective: Upper Cretaceous Woodbine Sandstone and the Lower
Cretaceous Pettet Limestone.
The Red Town Prospect, located in Leon County, consists of 1500 gross
acres (1100 net). The Company has employed the Electro-Seise(R) application on
this prospect and has assisted in identifying a drill site in the prospect. The
Company has also compared those results to a 2D seismic line, which has
confirmed our selection of a drill site.
This prospect is situated on the Elkhart field structure that has
produced 5 billion cubic feet of gas plus 23 million barrels of oil from the
Woodbine sands and more than 50 billion cubic feet of gas plus 590 million
barrels of oil from the Pettet Limestone. The proposed initial test well on the
prospect is a 6500' Woodbine test to confirm the faulted reservoir trap.
Anticipated production results from a successful well should be 250
BOPD equivalent and with estimated reserves of 300,000 BO. Estimated costs to
acquire and drill are $500,000. Drilling an initial well on the approximately
1100 acres of Red Town Prospect acreage also earns the option to lease 7000
additional acres to the southwest at reasonable terms.
The Nolan Prospect
The Nolan Prospect, located in the northwest portion of East Texas
Basin, is a 10,000' drilling opportunity to discover significant oil & gas
reserves along the Lower Cretaceous James Reef Trend. James Limestone oil & gas
production has been found along this trend in great quantities. In April 1998,
Chevron reported $2 billion in James Reef reserve discoveries in federal
offshore waters just off the Mississippi coast. In East Texas, a major James
Reef field, Fairway Field, was discovered in 1960. Production from Fairway has
totaled more than 200 million barrels of oil and 450 billion cubic feet of
natural gas.
The Nolan Prospect lies about 35 miles north of Fairway Field situated
on the same early Cretaceous shelf as indicated by digital gravity studies and
seismic mapping. The Nolan Prospect has the same reef characteristics as the
Fairway Field. Proportionally compared to the Fairway James reef, the
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<PAGE> 18
Nolan James reef anomaly is about 1/6th the size. Power's lease holdings in the
prospect are continuing to increase within the 3000 acre prospect anomaly
boundaries in anticipation of drilling in the near future.
The cost to drill a 10,000' test well on this prospect, plus costs to
acquire and complete geological surveys is approximately $850,000. As in the Red
Town prospect, the Nolan has Electro-Seise(R) data coupled with traditional 2D
seismic. Estimated production, assuming a successful well, could yield 400 BOPD
with 10 MMCFPD of gas. Reserves in this prospect could be very significant.
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. POWER 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 POWER to acquire good title to such properties.
Some title risks, however, cannot be avoided, despite the use of customary
industry practices.
POWER'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 POWER. POWER
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
POWER's business.
Exploration and Development Activities
Historically, POWER has financed its exploration and development
expenditures primarily through bank borrowings, equity capital from private
sales of stock, and promoted funds from industry partners. With respect to its
acquisition activities, POWER intends to shift its emphasis to larger scale
acquisitions of producing properties with additional development and exploration
potential. Initially, POWER plans to use a combination of debt and equity
financing to fund these larger acquisitions.
POWER made exploration and development expenditures of $5,496 and
$3,886 during the fiscal year ended September 30, 1997 and the fiscal year ended
September 30, 1998, respectively. POWER made net lease acquisitions of
$5,050,000 on proved properties and $1,510,871 on unproved properties during the
fiscal year ended September 30, 1997. The acquisition of proved properties was
made through the issuance of stock. Total lease acquisitions for proved and
unproved properties was $348,130 during the fiscal year ended September 30,
1998. POWER's ability to continue to fund its exploration and development
activities depends upon cash flow and its ability to secure the necessary
financing for such activities.
Operating Activities
Where possible, POWER prefers to have Rife Oil Properties, Inc. act as
operator of the oil and natural gas properties and prospects in which it owns an
interest. The operator of an oil and natural 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 natural 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. POWER's wells are drilled by independent
drilling contractors.
M.O. Rife, III, who serves as POWER's Board Chairman, owns 100% of Rife
Oil Properties, Inc., and Rife Oil is one of POWER's major stockholders. On
September 1, 1998, POWER secured an option to purchase Rife Oil Properties, Inc.
for three million shares of POWER common stock.
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<PAGE> 19
Oil and Natural Gas Reserves
On September 30, 1998, POWER's oil and natural gas interests were
located in the state of Texas, as well as on the Australian continent. All
reserves are located in the state of Texas; POWER has no reserves offshore. On
September 30, 1998, POWER has a total of 578 wells.
The following table summarizes POWER's reserves on September 30, 1998,
and was prepared in accordance with the rules and regulations of the Commission:
<TABLE>
<CAPTION>
Oil ( mbbls )
1998 1997
--------- ---------
<S> <C> <C>
Proved Developed and Undeveloped Reserves:
Beginning of Year 22,528.5 --
Purchases of Minerals in Place -- 22,529.8
Revisions of Previous Estimates (779.9) --
--
Production (4.1) (1.3)
--------- ---------
End of Year 21,744.5 22,528.5
========= =========
Proved Developed Reserves:
End of Year 3,785.0 4,568.6
========= =========
</TABLE>
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.
Drilling Activities
During the fiscal year ended September 30, 1998, POWER drilled one
well, and it resulted in a dry hole; in addition, POWER plugged ten wells that
had become unproductive. The average price that POWER received per barrel of oil
was $13.58, and lifting costs averaged $7.50 per barrel.
POWER has performed tests on its Corsicana field and drilled a core
well in March of 1998. Drilling is currently underway, and the field is expected
to begin generating a revenue stream by February of 1999. The use of lateral
well bores (horizontal) will limit the number of vertical wells required to
extract fluid, and thus reduce overall drilling costs for the field.
With respect to its drilling operations, POWER plans to concentrate on
lower risk, development-type properties, generally consisting of drilling in
reservoirs from which production is, or formerly was, being obtained while also
drilling some wildcat and developmental wells. The drilling of development wells
is subject to the normal risk of dry holes, or a failure to produce oil and
natural 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.
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, many
of which may not be covered by insurance. The number and type of wells drilled
by POWER 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
POWER in each well and the estimated recoverable reserves attributable to each
well.
The primary terms of the oil and gas leases covering the majority of
POWER's undeveloped acreage expire at various dates, generally ranging from 1 to
5 years. POWER can retain its interest in undeveloped acreage by drilling
activity that establishes commercial reserves sufficient to maintain the
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<PAGE> 20
lease. Certain of POWER's undeveloped acreage in Texas are being "held by
production," for which expiration will not occur until production ceases from
all wells on the particular leases.
SALES OF PRODUCING PROPERTIES AND UNDERDEVELOPED ACREAGE
POWER evaluates properties on an ongoing basis to determine the
economic viability of the property and whether such property enhances the
objectives of POWER. During the course of normal business, POWER may dispose of
producing properties and undeveloped acreage if POWER believes that such
disposition is in its best interests.
PRODUCTS, MARKETS AND REVENUES
Oil and natural gas are the principal products currently produced by
POWER. POWER does not refine or process the oil and natural gas that it
produces. POWER 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.
The availability of a ready market for oil and natural gas and the
prices of oil and natural gas are dependent upon a number of factors that are
beyond the control of POWER. These factors include, among other things, the
level of domestic production and economic activity generally, the availability
of imported oil and natural gas, actions taken by foreign oil producing nations,
the availability of natural gas pipelines with adequate capacity and other
transportation facilities, the availability and marketing of other competitive
fuels, fluctuating and seasonal demand for oil, natural 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 oil, natural gas and refined petroleum products, it is not possible to
predict accurately the prices or marketability of the oil and natural gas from
any producing well in which POWER 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 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 POWER to predict natural gas price movements with
any certainty.
POWER cannot provide assurance that it will be able to market all oil
or natural gas that POWER produces or, if such oil or natural 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 POWER and the value of its oil and natural 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 POWER. (See
"Management's Discussion and Analysis").
In certain areas in which POWER engages in oil and natural gas
production activities, the supply of oil and natural gas available for delivery
from time to time exceeds the demand. During such times, companies purchasing
oil and natural gas in such areas reduce the amount of oil and natural gas that
they will purchase or "take." If buyers cannot be readily located for newly
discovered oil and natural gas reserves, newly completed oil and natural gas
wells may be shut-in for various periods of time. As a result, the over-supply
of oil and natural gas in certain areas may cause POWER to experience "take"
problems or may adversely affect POWER's ability to obtain contracts to market
oil and natural gas discovered in wells in which POWER owns an interest.
Page 18 of 58
<PAGE> 21
DELIVERY COMMITMENTS
POWER is not presently obligated to provide a fixed and determinable
quantity of oil or natural gas under any existing contract or agreement.
COMPETITION
The oil and natural gas industry is highly competitive. POWER
encounters strong competition from other independent operators and from major
oil companies in acquiring properties, 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 POWER.
Exploration and production of oil and natural gas is also affected by
competition for drilling rigs and the availability of tubular goods and certain
other equipment. While the oil and natural gas industry has experienced
shortages of drilling rigs and equipment, pipe and personnel in the past, POWER
is not presently experiencing any shortages and does not foresee any such
shortages in the near future. POWER is unable to predict how long current market
conditions will continue.
Competition for attractive oil and natural gas producing properties,
undeveloped leases and drilling rights is also strong, and POWER 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. There can be no assurance that POWER will be successful in acquiring
any such properties.
Page 19 of 58
<PAGE> 22
ITEM 3. LEGAL PROCEEDINGS
Current Legal Matters
A former employee of Oil Retrieval Systems, Inc. (a subsidiary of the
Company) has filed a sexual harassment complaint with the City of Fort Worth.
The Company agreed to engage in mediation which resulted in the Company paying
$20,000 in exchange for a full and final release from the employee.
In other legal matters, the Company has filed an administrative claim
with the Bankruptcy Court to recover $30,000 from Southern Equipment.
Regulation
General: POWER'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 natural gas production, operations and economics are or have
been affected by price controls, taxes and other laws relating to the oil and
natural gas industry, by changes in such laws and by changes in administrative
regulations. POWER cannot predict how existing laws and regulations may be
interpreted by enforcement agencies or court rulings, whether additional laws
and regulations will be adopted, or the effect such changes may have on its
business or financial condition. Matters subject to regulation include discharge
permits for drilling operations, drilling and abandonment bonds or other
financial responsibility requirements, reports concerning operations, the
spacing of wells, unitization and pooling of properties, and taxation. There can
be no assurance that new laws or regulations, or modifications of or new
interpretations of existing laws and regulations, will not increase
substantially the cost of compliance or otherwise adversely affect POWER's oil
and natural gas operations and financial condition or that material indemnity
claims will not arise against POWER with respect to properties acquired by or
from POWER.
Environmental: POWER's operations are subject to numerous laws and
regulations governing the discharge of materials into the environment or
otherwise relating to environmental protection. These laws and regulations
require the acquisition of a permit before drilling commences, restrict the
types, quantities and concentration of various substances that can be released
into the environment in connection with drilling and production activities,
limit or prohibit drilling activities on certain lands lying within wilderness,
wetlands and other protected areas, and impose substantial liabilities for
pollution which might result from POWER's operations. Moreover, the recent trend
toward stricter standards in environmental legislation and regulation is likely
to continue.
For instance, legislation has been proposed in Congress from time to
time that would reclassify certain crude oil and natural gas exploration and
production wastes as "hazardous wastes" which would make the reclassified wastes
subject to much more stringent handling, disposal and clean-up requirements. If
such legislation were to be enacted, it could have a significant impact on the
operating costs of POWER, as well as the oil and natural gas industry in
general. Initiatives to further regulate the disposal of crude oil and natural
gas wastes are also pending in certain states, and these various initiatives
could have a similar impact on POWER. POWER could incur substantial costs to
comply with environmental laws and regulations. In addition to compliance costs,
government entities and other third parties may assert substantial liabilities
against owners and operators of oil and natural gas properties for oil spills,
discharge of hazardous materials, remediation and clean-up costs and other
environmental damages, including damages caused by previous property owners. As
a result, substantial liabilities to third parties or governmental entities may
be incurred, the payment of which could reduce or eliminate the funds available
for project investment or result in loss of POWER's properties. Although POWER
maintains insurance coverage it considers to be customary in the industry, it is
not fully insured against certain of these risks, either because such insurance
is not available or because of high premium costs. Accordingly, POWER may be
subject to liability or may lose substantial portions of properties due to
hazards that cannot be insured against or have not been insured against due to
prohibitive premium costs or for other reasons. The imposition of any such
liabilities on POWER could have a material adverse effect on POWER's financial
condition and results of operations.
The Oil Pollution Act of 1990 ("OPA") imposes a variety of regulations
on "responsible parties" related to the prevention of oil spills. The
implementation of new, or the modification of existing, environmental laws or
regulations, including regulations promulgated pursuant to the Oil Pollution Act
of 1990, could have a material adverse impact on POWER. While POWER does not
anticipate incurring material costs in connection with environmental compliance
and remediation, it cannot guarantee that material costs will not be incurred.
Legislation affecting the oil and natural 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 natural 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. POWER cannot predict how
Page 20 of 58
<PAGE> 23
existing regulations may be interpreted by enforcement agencies or the courts,
nor whether amendments or additional regulations will be adopted, nor what
effect such interpretations and changes may have on POWER's business or
financial condition.
Natural Gas Regulation
Historically, interstate pipeline companies generally acted as
wholesale merchants by purchasing natural gas from producers and reselling the
natural gas to local distribution companies and large end users. Commencing in
late 1985, the Federal Energy Regulatory Commission (the "FERC") issued a series
of orders that have had a major impact on interstate natural gas pipeline
operations, services, and rates, and thus have significantly altered the
marketing and price of natural gas. The FERC's key rule making action, Order No.
636 ("Order 636"), issued in April 1992, required each interstate pipeline to,
among other things, "unbundle" its traditional bundled sales services and create
and make available on an open and nondiscriminatory basis numerous constituent
services (such as gathering services, storage services, firm and interruptible
transportation services, and standby sales and natural gas balancing services),
and to adopt a new rate making methodology to determine appropriate rates for
those services. To the extent the pipeline company or its sales affiliate makes
natural gas sales as a merchant in the future, it does so pursuant to private
contracts in direct competition with all other sellers, such as POWER; however,
pipeline companies and their affiliates were not required to remain "merchants"
of natural gas, and most of the interstate pipeline companies have become
"transporters only." In subsequent orders, the FERC largely affirmed the major
features of Order 636 and denied a stay of the implementation of the new rules
pending judicial review. By the end of 1994, the FERC had concluded the Order
636 restructuring proceedings, and, in general, accepted rate filings
implementing Order 636 on every major interstate pipeline. However, even through
the implementation of Order 636 on individual interstate pipelines is
essentially complete, many of the individual pipeline restructuring proceedings,
as well as Order 636 itself and the regulations promulgated thereunder, are
subject to pending appellate review and could possibly be changed as a result of
future court orders. POWER cannot predict whether the FERC's orders will be
affirmed on appeal or what the effects will be on its business. In recent years
the FERC also has pursued a number of other important policy initiatives which
could significantly affect the marketing of natural gas. Some of the more
notable of these regulatory initiatives include (i) a series of orders in
individual pipeline proceedings articulating a policy of generally approving the
voluntary divestiture of interstate pipeline owned gathering facilities by
interstate pipelines to their affiliates (the so-called "spin down" of
previously regulated gathering facilities to the pipeline's nonregulated
affiliate), (ii) the completion of a rule making involving the regulation of
pipelines with marketing affiliates under Order No. 497, (iii) the FERC's
ongoing efforts to promulgate standards for pipeline electronic bulletin boards
and electronic data exchange, (iv) a generic inquiry into the pricing of
interstate pipeline capacity, (v) efforts to refine the FERC's regulations
controlling operation of the secondary market for released pipeline capacity,
and (vi) a policy statement regarding market based rates and other
non-cost-based rates for interstate pipeline transmission and storage capacity.
Several of these initiatives are intended to enhance competition in natural gas
markets, although some, such as "spin downs," may have the adverse effect of
increasing the cost of doing business on some in the industry as a result of the
monopolization of those facilities by their new, unregulated owners. The FERC
has attempted to address some of these concerns in its orders authorizing such
"spin downs," but it remains to be seen what effect these activities will have
on access to markets and the cost to do business. As to all of these recent FERC
initiatives, the ongoing, or in some instances, preliminary evolving nature of
these regulatory initiatives makes it impossible at this time to predict their
ultimate impact on POWER's business.
Federal Taxation
The federal government may propose tax initiatives that affect the oil
and natural gas industry, including POWER. Due to the preliminary nature of
these proposals, POWER is unable to determine what effect, if any, the proposals
would have on product demand or POWER's results of operations.
Page 21 of 58
<PAGE> 24
State Regulation
The various states in which POWER conducts activities regulate the
drilling, operation and production of oil and natural 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
POWER's exploration, development and production of oil and gas,
including its operation of saltwater injection and disposal wells, are subject
to various federal, state and local environmental laws and regulations. Such
laws and regulations can increase the costs of planning, designing, installing
and operating oil and gas wells. POWER's domestic activities are subject to a
variety of environmental laws and regulations, including, but not limited to,
the Oil Pollution Act of 1990 ("OPA"), the Clean Water Act ("CWA"), the
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"),
the Resource Conservation and Recovery Act ("RCRA"), the Clean Air Act ("CAA")
and the Safe Drinking Water Act ("SDWA"), as well as state regulations
promulgated under comparable state statutes. POWER also is subject to
regulations governing the handling, transportation, storage and disposal of
naturally occurring radioactive materials that are found in its oil and gas
operations. Civil and criminal fines and penalties may be imposed for
non-compliance with these environmental laws and regulations. Additionally,
these laws and regulations require the acquisition of permits or other
governmental authorizations before undertaking certain activities, limit or
prohibit other activities because of protected areas or species and impose
substantial liabilities for cleanup of pollution.
Under the OPA, a release of oil into water or other areas designated by
the statue could result in POWER being held responsible for the costs of
remediating such a release, certain OPA specified damages and natural resource
damages. The extent of that liability could be extensive, as set forth in the
statute, depending on the nature of the release. A release of oil in harmful
quantities or other materials into water or other specified areas could also
result in POWER being held responsible under the CWA for the cost of
remediation, and civil and criminal fines and penalties.
CERCLA and comparable state statutes, also known as "Superfund" laws,
can impose joint and several and retroactive liability, without regard to fault
or the legality of the original conduct, on certain classes of persons for the
release of a "hazardous substance" into the environment. In practice, cleanup
costs are usually allocated among various responsible parties. Potentially
liable parties include site owners or operators, past owners or operators under
certain conditions and entities that arrange for the disposal or treatment of,
or transport hazardous substances found at the site. Although CERCLA, as
amended, currently exempts petroleum, including, but not limited to, crude oil,
gas and natural gas liquids from the definition of hazardous substance, POWER's
operations may involve the use or handling of other materials that may be
classified as hazardous substances under CERCLA. Furthermore, there can be no
assurance that the exemption will be preserved in future amendments of the act,
if any.
RCRA and comparable state and local requirements impose standards for
the management, including treatment, storage and disposal of both hazardous and
nonhazardous solid wastes. POWER generates hazardous and nonhazardous solid
waste in connection with its routine operations. From time to time, proposals
have been made that would reclassify certain oil and gas wastes, including
wastes generated during pipeline, drilling and production operations, as
"hazardous wastes" under RCRA which would make such solid wastes subject to must
more stringent handling, transportation, storage, disposal and clean-up
requirements. This development could have a significant impact on POWER's
operating costs. While state laws vary on this issue, state initiatives to
further regulate oil and gas wastes could have a similar impact.
Because oil and gas exploration and production, and possibly other
activities, have been conducted at some of POWER's properties by previous owners
and operators, materials from these operations remain on some of the properties
and in some instances require remediation. In addition, POWER has agreed to
indemnify Sellers of producing properties from whom POWER has acquired reserves
against certain liabilities for environmental claims associated with such
properties. While POWER does not believe the costs to be incurred by POWER for
compliance and remediating previously or currently owned or operated properties
will be material, there can be no guarantee that such costs will not result in
material expenditures.
Page 22 of 58
<PAGE> 25
Additionally, in the course of POWER's routine oil and gas operations,
surface spills and leaks, including casing leaks, of oil or other materials
occur, and POWER incurs costs for waste handling and environmental compliance.
Moreover, POWER is able to control directly the operations of only those wells
for which it acts as the operator. Notwithstanding POWER's lack of control over
wells owned by POWER but operated by others, the failure of the operator to
comply with applicable environmental regulations may, in certain circumstances,
be attributable to POWER.
It is not anticipated that POWER will be required in the near future to
expend amounts that are material in relation to its total capital expenditures
program by reason of environmental laws and regulations, but inasmuch as such
laws and regulations are frequently changed, POWER is unable to predict the
ultimate cost of compliance. There can be no assurance that more stringent laws
and regulations protecting the environment will not be adopted or that POWER
will not otherwise incur material expenses in connection with environmental laws
and regulations in the future.
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. POWER 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 POWER's
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the last 3 months of the fiscal year ended September 30, 1998,
the only matters submitted by POWER to a vote of its shareholders through the
solicitation of proxies or otherwise were those submitted at the Stockholder's
Annual Meeting held on July 24, 1998. The company's shareholders voted to amend
the corporation's Articles of Incorporation to change its name from Titan Energy
Corporation to Power Exploration, Inc. This follows the decision by the board,
which was ratified by shareholders, to acquire certain assets of Power
Exploration Company, Inc. for a total of two million common shares. Separately,
the company's shareholders voted to change the company's domicile from the state
Colorado to the state of Nevada. As a result of the change in domicile, the
following persons were appointed to the board of directors of Power
Exploration., Inc.: M. O. Rife, III, Guy Pyron, Jack Gallacher, Joe B. Bennett,
and Thom Schliem. Shareholders approved the proposal to amend the Articles of
Incorporation and authorized 50 million shares of common stock at par value of
$0.02. The shareholders also approved the proposal to amend the Articles of
Incorporation and approved authorization of 10 million non-voting, 8 percent
cumulative preferred stock.
Page 23 of 58
<PAGE> 26
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
Market Information
POWER's Common Stock is currently quoted on the Electronic Bulletin
Board under the symbol "PWRX," but there is limited trading in the Common Stock.
The following table sets forth the high and low bid prices from October 1, 1997
through September 30, 1998, based upon quotations periodically published on the
OTC. All price quotations represent prices between dealers, without retail
mark-ups, mark-downs or commissions and may not represent actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C>
Fiscal Year ended September 30, 1997
October, November, & December 7.63 5.00
January, February, & March 1.75 0.44
April, May, & June 1.75 0.43
July, August, & September 3.57 1.06
Fiscal Year ended September 30, 1998
October, November, & December 1.88 0.63
January, February, & March 1.75 0.44
April, May, & June 1.75 0.43
July, August, & September 0.95 0.40
</TABLE>
The bid price for the Common Stock was $0.50 on December 1, 1998. The
above quotations reflect inter-dealer prices, without retail mark-up, mark-down
or commissions and may not necessarily represent actual transactions.
POWER is attempting to comply with certain listing criteria, including
minimum equity, share price, public float and market maker requirements and
intends to apply for inclusion of its Common Stock on The Nasdaq Stock Market
National Market ("Nasdaq National Market") or Small Cap Market when POWER is
able to satisfy such requirements. POWER cannot insure that it will be
successful in any application to have the Common Stock quoted on The Nasdaq
National Market or Small Cap Market. (See "Management's Discussion and
Analysis.")
Shareholders
According to the records of POWER's transfer agent, there were 2,057
holders of record of the Common Stock on September 30, 1998 (including nominee
holders such as banks and brokerage firms who hold shares for beneficial
holders).
Dividends
POWER has not paid any cash dividends on its Common Stock, and does not
anticipate paying cash dividends on its Common Stock in the next year. POWER
anticipates that any income generated in the foreseeable future will be retained
for the development and expansion of its business. Future dividend policy is
subject to the discretion of the Board of Directors and will depend upon a
number of factors, including future earnings, debt service, capital
requirements, business conditions, the financial condition of POWER and other
factors that the Board of Directors deems relevant.
Selected Financial Data
The following table presents selected historical financial data for
POWER. The financial data should be read in conjunction with POWER's financial
statements, the notes thereto and the other financial information, including
proforma information, included elsewhere herein. In the opinion of management of
POWER, the data presented reflect all adjustments considered necessary for a
fair presentation of the results for such periods. (See "Management's Discussion
and Analysis.")
Page 24 of 58
<PAGE> 27
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
Statement of Operations Data: Sept 30, 98 Sept 30, 97
<S> <C> <C>
Revenues:
Oil and natural gas $ 47,138 $ 22,714
Other 398,970 90,000
Total revenues 446,108 112,714
Cost of Revenue:
Oil and natural gas production 230,581 53,346
Depreciation, depletion and amortization 4,394 826
Cost of Equipment Sales 290,062 102,602
Total Cost of Revenue 525,037 156,774
Other Costs and Expenses:
General and administrative 2,171,255 547,173
Interest expense 445,633 70,295
Total Expenses 2,616,888 617,468
Loss before income taxes (2,695,817) (628,961)
Income taxes 0 0
Net (loss) (2,695,817) (628,961)
Net (loss) per share (0.26) (0.17)
Weighted average common and common equivalent shares outstanding 10,435,748 3,720,412
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
Sept 30, 98 Sept 30, 97
<S> <C> <C>
Balance Sheet Data:
Current assets $ 738,635 $ 693,309
Oil and gas properties, net 6,703,781 6,560,045
Total assets 7,707,036 7,559,509
Current liabilities 1,741,025 2,170,507
Long-term debt 0 0
Stockholders' equity 5,966,011 5,389,002
</TABLE>
Page 25 of 58
<PAGE> 28
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
Results of Operations -- Comparison of Years Ended September 30, 1997 and
September 30, 1998
Revenues
Oil and gas sales increased $24,424, or 108%, to $47,138 for the fiscal
year ended September 30, 1998 from $22,714 for the fiscal year ended September
30, 1997. Equipment sales increased $308,970, or 343%, to $398,970 for the
fiscal year ended September 30, 1998 from $90,000 for the fiscal year ended
September 30, 1997. Even with these large increases in revenue, income was far
short of expenses. To date, POWER has been putting the necessary components in
place to create ongoing income, and these efforts should begin to be realized
during the 1999 fiscal year.
Costs and Expenses
POWER's general and administrative expenses increased $1,624,082, or
297%, to $2,171,255 for the fiscal year ended September 30, 1998 from $547,173
for the fiscal year ended September 30, 1997. While this is a large increase,
general and administrative expenses as a percentage of net sales are essentially
flat at 487% for 1998 and 486% for 1997. The change in the dollar amount of
general and administrative expenses was due primarily to increased consulting
fees which accounted for 36% of all general and administrative expenses, and 29%
of total expenses. Other major components of general and administrative expenses
included officer's salaries at 7%, amortization at 7%, non-officer salaries at
5%, and legal fees at 5%. Separately, lease operating expenses increased
$176,338 to $228,632 for 1998 from $52,294 in 1997 resulting from the addition
of new leased properties.
Net Income (Loss)
Net loss for the fiscal year ended September 30, 1998 was $2,695,817,
or $.26 per share, compared to a loss of $628,961, or $.17 per share, for the
fiscal year ended September 30, 1997. This $2,066,856 increase was primarily the
result of the increase in general and administrative expenses as more fully
described above. Net cash used in operating activities was $877,942 for the
fiscal year ended September 30, 1998, and $231,206 for the fiscal year ended
September 30, 1997, representing an increase
Page 26 of 58
<PAGE> 29
of 280% in cash usage. All cash activities of the business produced a $34,457
increase in cash for the fiscal year ended September 30, 1998, as compared to a
$87,526 increase for the fiscal year ended September 30, 1997.
Liquidity and Capital Resources
POWER's working capital deficit on September 30, 1998 was $1,002,390
compared to a deficit of $1,477,198 on September 30, 1997. This $474,808
increase in working capital resulted primarily from the reduction in debt to
related parties; this debt was eliminated through the issuance of shares of the
company's stock. POWER had a current ratio of 0.4 for the fiscal year ended
September 30, 1998, as compared to 0.8 for the fiscal year ended September 30,
1997. A comparison of other ratios that measure financial performance show no
change in the quick ratio of 0.2, net worth to assets at 0.8 and 0.7
respectively, and debt to net worth of (2.4) and (1.9) respectively. This data
all highlights POWER's need to raise additional capital, to convert some
short-term debt into long-term debt, or to incur new long-term debt.
Long-Term Debt
On September 30, 1998, POWER had no long-term debt. Although 87% of
POWER's assets are comprised of oil and gas properties that are not a current
asset, all of POWER's borrowings have been short term in nature. This has
aggravated POWER's cash position and produced lower measures of financial
performance than would otherwise be possible.
Sale of Equity
POWER was indebted to Benchmark Equity Group, Inc. under terms of a
line of credit promissory note dated May 7, 1998 in the amount of $500,000. This
line of credit had an interest rate of 12% and a maturity date of October 7,
1998. At September 30, 1998, $500,000 was outstanding under the note. The note
was paid through the issuance of 500,000 common shares ($1.00 of debt per share)
on October 7, 1998. The note was collateralized by all fixed, real, tangible and
intangible assets owned by POWER, and the collateral was released upon the
subsequent conversion of the note.
Stock Issued for Services
During the 1998 fiscal year, POWER issued 3,339,372 shares of stock as payment.
Of these shares, 1,100,000 shares were for services rendered, 1,000,000 shares
were for the conversion of a note payable, and 1,239,372 shares were for the
conversion of debentures.
Need to Raise Additional Capital
The growth of POWER's business will require substantial capital on a
continuing basis. There is no assurance that any such required additional funds
would be available on satisfactory terms and conditions, if at all. There is
also no assurance that POWER will not pursue, from time to time, opportunities
to acquire oil and natural gas properties and businesses that may utilize the
capital currently expected to be available for its present operations. The
amount and timing of POWER's future capital requirements, if any, will depend
upon a number of factors, including drilling costs, transportation costs,
equipment costs, marketing expenses, staffing levels and competitive conditions,
and any purchases or dispositions of assets, many of which are not within
POWER's control. Failure to obtain any required additional financing could
materially adversely affect the growth, cash flow and earnings of POWER. In
addition, POWER's pursuit of additional capital could result in the incurrence
of additional debt or potentially dilutive issuances of additional equity
securities.
Inflation and Changing Prices
The impact of inflation, as always, is difficult to assess. In 1997 and
through the first quarter of 1998, POWER has experienced a weakness in prices
received for its oil and natural gas production.
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<PAGE> 30
POWER cannot anticipate whether the present level of inflation will remain,
however, a sudden increase in inflation and/or an increase in operating costs or
drilling costs coupled with a continuation of low oil prices could have an
adverse effect on the operations of POWER.
Year 2000 Compliance
POWER's management has conducted a review of its information systems
and related data-processing activities to assess its exposure to the Year 2000
issue. As a result, POWER has upgraded the operating software on some of its
computers to a Year 2000 compliant system. POWER has purchased an upgrade to its
accounting software that is Year 2000 compliant; this upgrade will be installed
and operational on or before March 31, 1999.
POWER currently uses Year 2000 compliant engineering evaluation
software for acquisition analysis, as well as internal engineering applications.
POWER's spreadsheet and word processing software is also Year 2000 compliant.
POWER has potential Year 2000 exposure with regard to its third party
relationships and services including its bank and bank accounts and other vendor
and/or service providers who utilize computers. Though POWER has no control over
Year 2000 compliance implementation by these parties, POWER has inquired and
been assured that all of POWER's service providers currently are, or will be,
Year 2000 compliant.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following pages contain the audited financial statements and
accompanying notes as prepared by POWER's independent auditors.
Page 28 of 58
<PAGE> 31
POWER EXPLORATION, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
Page 29 of 58
<PAGE> 32
POWER EXPLORATION, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
INDEX
<TABLE>
<S> <C>
INDEPENDENT AUDITORS' REPORT 1
CONSOLIDATED BALANCE SHEETS 2
CONSOLIDATED STATEMENTS OF OPERATIONS 3
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY 4
CONSOLIDATED STATEMENTS OF CASH FLOWS 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6 - 22
</TABLE>
Page 30 of 58
<PAGE> 33
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
POWER EXPLORATION, INC. AND SUBSIDIARIES
We have audited the accompanying consolidated balance sheets of POWER
EXPLORATION, INC. AND SUBSIDIARIES as of September 30, 1998 and 1997 and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of POWER
EXPLORATION, INC. AND SUBSIDIARIES as of September 30, 1998 and 1997 and the
consolidated results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 14 to the
financial statements, the Company has suffered recurring losses from operations
and its limited capital resources raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 14. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
MERDINGER, FRUCHTER, ROSEN & CORSO, P.C.
Certified Public Accountants
New York, New York
October 30, 1998
Except for Note 15 as to
which the date is January 11, 1999
Page 31 of 58
<PAGE> 34
POWER EXPLORATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30
<TABLE>
<CAPTION>
ASSETS 1998 1997
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 129,901 $ 95,444
Accounts Receivable 11,477 35,482
Receivable - Related Party 121,253 --
Inventory 352,462 553,154
Prepaid Expenses 123,542 9,229
------------ ------------
Total Current Assets 738,635 693,309
------------ ------------
OIL AND GAS PROPERTIES, FULL COST METHOD
Properties being amortized 5,396,496 5,050,000
Properties not subject to amortization 1,312,505 1,510,871
------------ ------------
6,709,001 6,560,871
Less: Accumulated depreciation, depletion
and amortization (5,220) (826)
------------ ------------
Net Oil and Gas Properties 6,703,781 6,560,045
------------ ------------
PROPERTY AND EQUIPMENT, Net of Accumulated
Depreciation of $46,037 and $12,634 250,774 228,706
------------ ------------
OTHER ASSETS 13,846 77,449
------------ ------------
TOTAL ASSETS $ 7,707,036 $ 7,559,509
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $ 416,217 $ 100,707
Customer Deposits 110,000 107,300
Advances Payable 22,500 --
Debentures Payable, net of unamortized discount
of $7,692 and $130,500 242,308 652,500
Notes Payable 900,000 --
Notes Payable - Related Party 50,000 1,310,000
------------ ------------
Total Liabilities 1,741,025 2,170,507
------------ ------------
STOCKHOLDERS' EQUITY
Common Stock, $.02 par value; 50,000,000 shares
authorized, 11,060,925 and 7,721,553 shares
issued and outstanding, respectively 221,218 154,431
Additional Paid-in Capital 10,415,872 7,209,833
Accumulated Deficit (4,671,079) (1,975,262)
------------ ------------
Total Stockholders' Equity 5,966,011 5,389,002
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,707,036 $ 7,559,509
============ ============
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements.
Page 32 of 58
<PAGE> 35
POWER EXPLORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
REVENUE
Oil and Gas Sales $ 47,138 $ 22,714
Equipment Sales 398,970 90,000
------------ ------------
446,108 112,714
------------ ------------
COST OF REVENUE
Lease Operating 228,632 52,294
Production Taxes 1,949 1,052
Depreciation, Depletion and Amortization 4,394 826
Cost of Equipment Sales 290,062 102,602
------------ ------------
525,037 156,774
------------ ------------
GROSS PROFIT (78,929) (44,060)
------------ ------------
EXPENSES
General and Administrative 2,171,255 547,173
Interest Expense 445,633 70,295
------------ ------------
TOTAL EXPENSES 2,616,888 617,468
------------ ------------
LOSS BEFORE OTHER INCOME AND
PROVISION FOR INCOME TAXES (2,695,817) (661,528)
OTHER INCOME -- 32,567
------------ ------------
LOSS BEFORE PROVISION FOR INCOME TAXES (2,695,817) (628,961)
PROVISION FOR INCOME TAXES -- --
------------ ------------
NET LOSS $ (2,695,817) $ (628,961)
============ ============
LOSS PER SHARE $ (.26) $ (.17)
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 10,435,748 3,720,412
============ ============
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements.
Page 33 of 58
<PAGE> 36
POWER EXPLORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
Common Stock
-------------------------------- Additional
Paid-In Accumulated
Shares Amount Capital Deficit Total
------------- ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Balance -- September 30, 1996 1,886,851 1,301,951 -- $ (1,305,780) $ (3,829)
Adjustment to Par Value -- (1,264,214) 1,264,214 -- --
Issuance of Shares for Oil 2,500,000 50,000 280,000 -- 330,000
Retrieval Systems, Inc
Issuance of Shares for Oil 400,000 8,000 1,192,000 -- 1,200,000
Seeps, Inc.
Adjustment to Record Subsidiaries -- -- 46,213 (40,521) 5,692
Issuance of Shares for Properties 2,000,000 40,000 3,710,000 -- 3,750,000
Issuance of Shares in Conversion of Debt 434,702 8,694 458,306 -- 467,000
Adjustment for Discount on Bonds -- -- (93,400) -- (93,400)
Issuance of Shares for Services 500,000 10,000 352,500 -- 362,500
Net Loss -- -- -- (628,961) (628,961)
------------ ------------ ------------ ------------ ------------
Balance -- September 30, 1997 7,721,553 154,431 7,209,833 (1,975,262) 5,389,002
Issuance of Shares for Services 1,100,000 22,000 665,500 -- 687,500
Issuance of Shares in Conversion 1,000,000 20,000 1,323,381 -- 1,343,381
of Note Payable
Issuance of Shares in Conversion 1,239,372 24,787 696,803 -- 721,590
of Debentures
Issuance of Warrants -- -- 520,355 -- 520,355
Net Loss -- -- -- (2,695,817) (2,695,817)
------------ ------------ ------------ ------------ ------------
Balance -- September 30, 1998 11,060,925 $ 221,218 $ 10,415,872 $ (4,671,079) $ 5,966,011
============ ============ ============ ============ ============
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements.
Page 34 of 58
<PAGE> 37
POWER EXPLORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(2,695,817) $ (628,961)
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Interest Expense 290,233 --
Bad Debt Expense 47,180 --
Depreciation, Depletion and Amortization 37,797 13,460
Amortization of Loan Fees 187,065 --
Amortization of Discount on Bonds Payable 72,791 93,400
Write Down of Inventory 127,380 --
Issuance of Shares for Services 708,205 362,500
(Increase) in Receivables (23,175) (35,482)
(Increase) Decrease in Receivables -- Related Party (121,253) --
(Increase) Decrease in Inventory 73,312 (223,154)
(Increase) in Prepaid Expenses (4,358) (9,229)
Increase in Accounts Payable and Accrued Expenses 397,498 100,707
Increase in Customer Deposits 2,700 107,300
Increase (Decrease) in Advances Payable 22,500 (11,747)
----------- -----------
Net Cash (Used) in Operating Activities (877,942) (231,206)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of Oil and Gas Properties 200,000 --
Cost of Oil and Gas Properties (348,130) (310,871)
Purchase of Property and Equipment (55,471) (241,340)
Adjustment for Acquisition of Subsidiaries -- (9,057)
----------- -----------
Net Cash (Used) in Investing Activities (203,601) (561,268)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Borrowings 1,050,000 80,000
Repayment of Borrowings (110,000) (70,000)
Net Proceeds on Sale of Debentures 176,000 870,000
----------- -----------
Net Cash Provided by Financing Activities 1,116,000 880,000
----------- -----------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 34,457 87,526
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 95,444 7,918
----------- -----------
CASH AND CASH EQUIVALENTS - SEPTEMBER 30, $ 129,901 $ 95,444
=========== ===========
CASH PAID DURING THE YEAR FOR:
Interest Expense 4,581 --
Income Taxes -- --
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements.
Page 35 of 58
<PAGE> 38
POWER EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
The Company is engaged primarily in the fields of acquisition,
development, exploration for and sale of oil and gas, and the
construction and sale of oil and gas extraction equipment.
Basis of Consolidation
The consolidated financial statements include the accounts of
Power Exploration, Inc. ("Power", formerly Titan Energy Corp.,
Inc.) and its 100% owned subsidiaries, Oil Retrieval Systems,
Inc. ("ORS"), acquired May 16, 1997 and Oil Seeps, Inc.
("OSI") acquired June 17, 1997. Accordingly, all references
herein to Power or the "Company" include the consolidated
results of its subsidiaries. All significant intercompany
accounts and transactions have been eliminated in
consolidation.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased
with original maturities of three months or less to be cash
equivalents.
Inventory
Inventory, consisting of parts and materials used in the
construction of oil extraction equipment, are stated at the
lower of cost or market, cost being determined by the average
cost method.
Oil and Gas Properties
The Company follows the full cost method of accounting for oil
and gas property acquisition, exploration, development, and
production.
Capitalization Policies: All oil and gas property acquisition,
exploration, and development costs are capitalized as
incurred. There were no internal costs directly attributable
to such activities. Net capitalized costs of unproved property
and exploration well costs are reclassified as proved property
and well costs when related proved reserves are found. Costs
to operate and maintain wells and field equipment are expensed
as incurred.
Amortization Policies: Except for cost of (1) unevaluated,
unproved properties and (2) major development projects in
progress, all capitalized oil and gas property costs, net of
prior accumulated amortization, are amortized by country using
the unit-of-production method based on proved reserves. The
amortization base includes estimated future costs to develop
proved reserves and estimated future
Page 36 of 58
<PAGE> 39
POWER EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
dismantlement, reclamation, and abandonment costs, net of
equipment salvage values.
Impairment Policies: Costs not being amortized are
periodically assessed for impairment. Any impairment is added
to the amortization base. Net capitalized costs of oil and gas
properties, less related deferred income taxes are limited, by
country, to the sum of (1) future net revenues (using prices
and cost rates as of the balance sheet date) from proved
reserves and discounted at ten percent per annum, plus (2)
costs not being amortized, less (3) related income tax
effects. Excess costs are charged to proved property
impairment expense.
Sales and Retirements Policies: No gain or loss is recognized
on the sale of oil and gas properties unless non-recognition
would significantly alter the relationship between capitalized
costs and remaining proved reserves for the affected
amortization base. When gain or loss is not recognized, the
amortization base is reduced by the amount of sales proceeds.
Revenue Recognition
Revenues from the sale of oil and gas production are
recognized when title passes, net of royalties. Natural gas
revenues are generally recognized under the entitlements
method of accounting for gas imbalances, i.e., monthly sales
quantities that do not match the Company's entitled share of
joint production. Entitled quantities in excess of sales
quantities are recorded as a receivable from joint venture
partners. The receivable is carried at the lower of current
market price or the market price at the time the imbalance
occurred. Sales quantities in excess of entitled quantities
are recorded as deferred revenue carried at the gas market
price received at the time the imbalance occurred.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amount of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting date. Actual results could differ from those
estimates.
Page 37 of 58
<PAGE> 40
POWER EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Hedging
The Company may enter into derivative contracts to hedge the
risk of future oil and gas price fluctuations. Such contracts
may either fix or support oil or gas prices or limit the
impact of price fluctuations with respect to the Company's
sales of oil and gas. Gains and losses on such hedging
activities are recognized in oil and gas revenues when the
hedged production is sold. Hedged oil and gas prices used in
computing the year-end standardized measure of discounted
future net cash flows relating to proved oil and gas reserves
reflect the estimated effects of hedging contracts existing at
year end.
Depreciation and Amortization
Property and equipment are stated at cost and are depreciated
using the straight-line method over their estimated useful
lives.
The costs of maintenance and repairs are charged to expense
when incurred; costs of renewals and betterments are
capitalized. Upon the sales or retirement of property and
equipment, the cost and related accumulated depreciation are
eliminated from the respective accounts and the resulting gain
or loss is included in operations.
Fair Value of Financial Instruments
The Company's financial instruments consist of cash, accounts
receivable, accounts payable and short-term debt. The carrying
amounts of cash, accounts receivable, accounts payable and
short-term debt approximate fair value due to the highly
liquid nature of these short term instruments.
Long-Lived Assets
Long-lived assets to be held and used are reviewed for
impairment whenever events or changes in circumstances
indicate that the related carrying amount may not be
recoverable. When required, impairment losses on assets to be
held and used are recognized based on the fair value of the
assets and long-lived assets to be disposed of are reported at
the lower of carrying amount of fair value less cost to sell.
Income Taxes
Provisions for income taxes are based on taxes payable or
refundable for the current year and deferred taxes on
temporary differences between the amount of taxable income and
pretax financial income and between the tax bases of assets
and liabilities and their reported amounts in the financial
statements. Deferred tax assets and liabilities are included
in the financial statements at currently enacted income tax
rates applicable to the period in which the deferred tax
assets and liabilities are expected to be realized or settled
as prescribed in FASB Statement No. 109,
Page 38 of 58
<PAGE> 41
POWER EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Accounting for Income Taxes. As changes in tax laws or rates
are enacted, deferred tax assets and liabilities are adjusted
through the provision for income taxes.
Concentration of Credit Risk
The Company places its cash in what it believes to be
credit-worthy financial institutions. However, cash balances
may exceed FDIC insured levels at various times during the
year.
Per Share of Common Stock
Per share amounts have been computed based on the average
number of common shares outstanding during the period.
In February 1997, the Financial Accounting Standards Board
issued a new statement titled "Earnings Per Share" (SFAS No.
128). This statement is effective for both interim and annual
periods ending after December 15, 1997 and specifies the
computation, presentation, and disclosure requirements for
earnings per share for entities with publicly held common
stock or potential common stock. All prior-period EPS data
presented has been restated to conform with the provisions for
SFAS No. 128.
Potential common stock has been excluded from the computation
of earnings per share since the inclusion of options and
warrants would be antidilutive.
Impact of Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board issued
a new statement titled "Reporting Comprehensive Income" (SFAS
No. 130). This statement is effective for both interim and
annual periods beginning after December 15, 1997. This
statement uses the term "comprehensive income" to describe the
total of all components of comprehensive income, including net
income. This statement uses the term "other comprehensive net
income" to refer to revenues, expenses, gains or losses that
under generally accepted accounting principles are included in
comprehensive income, but excluded from net income.
The impact of SFAS No. 130 in the financial statements, had it
been adopted as of September 30, 1998 and 1997, is not
applicable, since the Company had no other comprehensive
income.
Page 39 of 58
<PAGE> 42
POWER EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 2 - INVENTORY
Inventory at September 30 consists of the following:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Raw Material $225,604 $414,946
Work in Process 126,858 138,208
-------- --------
$352,462 $553,154
======== ========
</TABLE>
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment at September 30 consist of the following:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Shop Equipment $ 30,852 $ --
Furniture and Office Equipment 22,887 11,340
Machinery 243,072 230,000
--------- ---------
296,811 241,340
Less Accumulated Depreciation 46,037 12,634
--------- ---------
Property and Equipment - Net $ 250,774 $ 228,706
========= =========
Depreciation Expense Recorded in
the Statement of Operations $ 33,403 $ 12,634
========= =========
</TABLE>
NOTE 4 - OIL AND GAS PROPERTIES NOT SUBJECT TO AMORTIZATION
The Company's oil and gas properties are located in the United
States and Australia. Amortization expense was $1.07 and $0.62
per Bbl production during the years ended September 30, 1998 and
1997, respectively.
The $1,312,505 and $1,510,871 cost of unproved oil and gas
leases held at September 30, 1998 and 1997, respectively, have
been excluded in computing amortization of the full cost pool.
Page 40 of 58
<PAGE> 43
POWER EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
Costs excluded from amortization consist of the following at
September 30:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Acquisition Costs $ 1,200,000 $ 1,510,871
Exploration Costs 112,505 --
----------- -----------
$ 1,312,505 $ 1,510,871
=========== ===========
</TABLE>
All excluded costs at September 30, 1998 are located in
Australia.
At September 30, 1998, a determination cannot be made about the
extent of oil reserves that should be classified as proved
reserves for this prospect. Consequently, the associated
property costs and exploration costs have been excluded in
computing amortization of the full cost pool. The Company
estimates that amortization of these costs will begin during the
calendar year 1999.
NOTE 5 - PARTICIPATION AGREEMENT
The Company had entered into a participation agreement in the
development of the Revilo Glorieta Unit situated in Scurry
County, Texas. Under this agreement, the Company received an 18%
net revenue interest in the property, with no liability for
expenses except as described below. The agreement was effective
January 15, 1997 and was terminated by the Company during the
year ended September 30, 1998.
The agreement called for the Company to furnish three oil
retrieval systems to facilitate production on the property in
order to earn its 18% net revenue interest. The Company bore no
expense in the operation of the units, except to provide
maintenance expense on the equipment.
NOTE 6 - NOTES PAYABLE
Notes payable at September 30 consist of the following:
<TABLE>
<CAPTION>
1998 1997
--------- ----------
<S> <C> <C>
a) Note Payable - Related Party $ 50,000 $ -----
b) Note Payable - Bank of Commerce 100,000 -----
c) Note Payable - Business Exchange Investments, Inc. 250,000 -----
d) Note Payable - Dallas Cady Family, LLP 50,000 -----
e) Note Payable - Benchmark Equity Group 500,000 -----
f) Note Payable - Related Party ----- 10,000
g) Note Payable - Related Party ----- 1,300,000
--------- ----------
$ 950,000 $1,310,000
========= ==========
</TABLE>
Page 41 of 58
<PAGE> 44
POWER EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 6 - NOTES PAYABLE (continued)
a) The Company is indebted to M.O. Rife IV under terms of a
promissory note dated April 7, 1998 in the amount of $50,000.
Mr. Rife is the son of a principal stockholder of the Company.
Terms of the note provide for interest at a rate of 12% per
annum, with an original maturity date of October 6, 1998. The
maturity date of the note has been extended to January 31,
1999.
b) The Company is indebted to the Bank of Commerce under terms of
a promissory note dated July 29, 1998 in the amount of
$100,000. Terms of the note provide for interest at a rate of
9.5% per annum, with an original maturity date of August 27,
1998. The note has been verbally extended and was paid in full
on October 22, 1998. The note has been guaranteed by a
principal stockholder of the Company.
c) The Company is indebted to Business Exchange Investment, Inc.
under terms of a promissory note dated September 15, 1998.
Terms of the note provide for interest at a rate of 10% per
annum with a maturity date of January 15, 1999. The note is
collateralized by 100% of the shares of OSI (see Note 1).
d) The Company is indebted to Dallas Cady Family , LLP under terms
of a promissory note dated September 15, 1998 in the amount of
$50,000. Terms of the note provide for interest to be paid in
the form of 80,000 common stock purchase warrants with an
exercise price of $1.00 per share. The warrants have been
valued at $44,160. The maturity of the note is January 15,
1999.
e) The Company is indebted to Benchmark Equity Group, Inc. under
terms of a line of credit promissory note dated May 7, 1998 in
the amount of $500,000. Outstanding advances bear interest at
12% per annum commencing July 1, 1998. The maturity date is
October 7, 1998. At September 30, 1998, $500,000 is outstanding
under the note. The note is payable in shares of common stock
of the Company at a price of $1.00 of debt per share. The note
was paid through the issuance of 500,000 common shares on
October 7, 1998.
f) At September 30, 1997, the Company was indebted to a
stockholder for $10,000 unpaid principal on an $80,000
promissory note. This amount was repaid on November 1, 1997.
g) At September 30, 1997, the Company was indebted to the same
stockholder as in item (f) above under terms of a promissory
note in the amount of $1,300,000, dated June 11, 1997. The note
was due on November 11, 1997. The Company defaulted on payment
of the note and the note was satisfied through the issuance of
1,000,000 shares of the Company's common stock, which had been
held in trust as collateral.
Page 42 of 58
<PAGE> 45
POWER EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 7 - DEBENTURES PAYABLE
a) During July and August 1997, the Company sold $1,250,000 of 12%
Convertible Debentures, in accordance with Regulation D of the
Securities Act of 1933, for net proceeds of $870,000.
The debentures bore interest at 12% per annum and were due and
payable on July 31, 1998, if not converted earlier. Interest was
payable quarterly.
The principal amount of the debentures was converted at the
holders option anytime 28 days after the closing date into
shares of the Company's common stock at a conversion price for
each share of Company common stock equal to the lower of (a) 80%
of the closing bid price of the common stock for the business
day immediately preceding the date of receipt by the Company and
notice of conversion or (b) 80% of the average of the closing
bid price of the common stock for the 5 business days
immediately preceding the closing date.
Costs of $130,000 incurred in connection with the issuance of
these debentures are being amortized over the life of the
debentures. Unamortized issuance costs are charged to additional
paid-in capital as debentures are converted into common stock
As of September 30, 1997, $467,000 principal amount of
debentures had been converted into 434,702 shares of common
stock.
During the year ended September 30, 1998, the remaining $783,000
principal amount of debentures was converted into 1,239,372
shares of common stock.
Accrued interest of $38,607 has been included in the above
conversions.
b) On October 22, 1997, the Company sold $250,000 of 12%
Convertible Debentures in accordance with Regulation D of the
Securities Act of 1933, for net proceeds of $176,000. Conversion
terms are similar to those of the debentures described in (a)
above.
The Company and the buyer of the debenture were in disagreement
concerning the validity of the debenture. On October 29, 1998,
the parties reached an agreement. The agreement provides that
the buyer will remit an additional amount of $150,000 to the
Company. The Company will then issue 650,000 shares of common
stock to convert the total advances of $400,000 plus all accrued
interest into equity. This conversion occurred on October 30,
1998.
Page 43 of 58
<PAGE> 46
POWER EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 8 - WARRANTS
At September 30, 1998, the Company had the following common
stock purchase warrants outstanding:
a) 100,000 warrants, each of which entitles the registered
holder thereof to purchase one share of Common Stock,
exercisable at any time on or before August 31, 2002 at an
exercise price of $2.50 per share (subject to customary
anti-dilution adjustments). The exercise price exceeded the
market price of the underlying common stock on the date of
issuance. The warrants were issued in connection with the
placement of the debt described in Note 7a.
b) 80,000 warrants, each of which entitles the registered
holder thereof to purchase one share of Common Stock,
exercisable at any time on or before August 31, 2003 at an
exercise price of $1.00 per share (subject to customary
anti-dilution adjustments). The warrants were issued in
connection with the debt described in Note 6(d) and have
been valued at $44,160.
c) 425,000 warrants, each of which entitles the registered
holder thereof to purchase one share of Common Stock,
exercisable at any time on or before October 31,2003 at an
exercise price of $1.00 per share (subject to customary
anti-dilution adjustments). The warrants were issued as a
fee in connection with the debt described in Note 6(e) and
have been valued at $234,600.
d) 75,000 warrants, each of which entitles the registered
holder thereof to purchase one share of Common Stock,
exercisable at any time on or before October 31, 2003 at an
exercise price of $2.50 per share (subject to customary
anti-dilution adjustments). The warrants were issued as a
fee in connection with the debt described in Note 6(e) and
have been valued at $103,575.
e) 20,000 warrants, each of which entitles the registered
holder thereof to purchase one share of Common Stock,
exercisable at any time on or before June 1, 2003 at an
exercise price of $2.50 per share (subject to customary
anti-dilution adjustments). The warrants were issued as
payment for a consulting agreement and have been valued at
$27,620.
f) 100,000 warrants, each of which entitles the registered
holder thereof to purchase one share of Common Stock,
exercisable at anytime on or before June 1, 2003, at an
exercise price of $1.00 per share (subject to customary
anti-dilution adjustments). The warrants were issued as
payment of interest on a $100,000 note and have been valued
at $55,200.
Page 44 of 58
<PAGE> 47
POWER EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
g) 100,000 warrants, each of which entitles the registered
holder thereof to purchase one share of Common Stock,
exercisable at anytime on or before June 1, 2003, at an
exercise price of $1.00 per share (subject to customary
anti-dilution adjustments). The warrants were issued as
payment for a consulting agreement and have been valued at
$55,200.
The warrants issued do not confer upon the holders thereof any
voting or other rights of a stockholder of the Company.
The warrants described in items (b) through (g) above are
subject to a "cashless exercise" provision (the "warrant
exchange"). In connection with any Warrant Exchange, the
Holder's Warrant certificate shall represent the right to
subscribe for an acquire (I) the number of Warrant Shares
(rounded to the next highest integer) equal to (A) the number of
Warrant Shares specified by the Holder in its Notice of Exchange
(the "Total Share Number") less (B) the number of Warrant Shares
equal to the quotient obtained by dividing (i) the product of
the Total Share Number and the existing Exercise Price (as
defined) of a share of Common Stock.
NOTE 9 - INCOME TAXES
The components of the provision for income taxes is as follows:
<TABLE>
<CAPTION>
September 31,
--------------------------------
1998 1997
------------ -----------
<S> <C> <C>
Current Tax Expense
U.S. Federal $ -- $ --
State and Local --
------------ -----------
Total Current -- --
------------ -----------
Deferred Tax Expense
U.S. Federal -- --
State and Local -- --
------------ -----------
Total Deferred -- --
------------ -----------
Total Tax Provision from Continuing Operations $ -- $ --
============ ===========
</TABLE>
Page 45 of 58
<PAGE> 48
POWER EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 9 - INCOME TAXES (continued)
The reconciliation of the effective income tax rate to the
Federal statutory rate is as follows:
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Federal Income Tax Rate (34.0)% (34.0)%
Deferred Tax Charge (Credit) -- --
Effect of Valuation Allowance 34.0% 34.0%
State Income Tax, Net of Federal Benefit -- --
------ ------
Effective Income Tax Rate 0.0% 0.0%
====== ======
</TABLE>
At September 30, 1998, the Company had net carryforward losses
of approximately $3,287,000. A valuation allowance equal to the
tax benefit for deferred taxes has been established due to the
uncertainty of realizing the benefit of the tax carryforward.
Deferred tax assets and liabilities reflect the net tax effect
of temporary differences between the carrying amount of assets
and liabilities for financial reporting purposes and amounts
used for income tax purposes. Significant components of the
Company's deferred tax assets and liabilities at September 30
are as follows:
<TABLE>
<CAPTION>
September 30,
-------------------------
1998 1997
---------- ---------
<S> <C> <C>
Deferred Tax Assets (Liabilities):
Loss Carryforwards $1,118,000 $ 427,000
Consulting Fees 110,000 123,000
Exploration Costs (28,000) --
Depreciation (19,000) (7,000)
Less: Valuation Allowance (1,181,000) (543,000)
---------- ---------
Net Deferred Tax Assets $ -- $ --
========== =========
</TABLE>
Net operating loss carryforwards expire in 1998 through 2012.
Per year availability of losses incurred prior to October 1,
1997 of approximately $1,006,000 is subject to change of
ownership limitations under Internal Revenue Code Section 382.
Page 46 of 58
<PAGE> 49
POWER EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 9 - INCOME TAXES (continued)
Expiration dates of net operating loss carryforwards are as
follows:
<TABLE>
<S> <C> <C>
September 30, 1999 $ 351,000
2000 72,000
2001 89,000
2002 8,000
2003 18,000
2005 5,000
2007 65,000
2009 16,000
2010 3,000
2011 28,000
2012 303,000
2018 2,329,000
----------
$3,287,000
==========
</TABLE>
NOTE 10 - RELATED PARTY TRANSACTIONS
During the year ended September 30, 1998:
a) The Company issued a promissory note to the son of a principal
stockholder in the amount of $50,000. (See Note 6(a)).
b) A principal stockholder guaranteed the Bank of Commerce
promissory note in the amount of $100,000. (See Note 6(b)).
c) The Company issued a promissory note to a Trust, one of the
beneficiaries of which is an officer of the Company, in the
amount of $100,000. This note has been repaid as of September
30, 1998. 100,000 Common Stock purchase warrants were issued as
payment of interest on the note. (See Note 8(f)).
d) The Company acquired an option to purchase Rife Oil Properties,
Inc. a principal stockholder of the Company. The option is for a
one year period commencing September 1, 1998. The price to be
paid for Rife Oil Properties, Inc., should the Company exercise
the option, shall be 3,000,000 shares of Company Common Stock.
e) The Company occupies space in facilities leased by the
stockholder mentioned above. The Company pays rent to the
stockholder in the amount of $2,000 per month. The space is
rented on a monthly basis.
Page 47 of 58
<PAGE> 50
POWER EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 10 - RELATED PARTY TRANSACTIONS (continued)
f) The stockholder mentioned above has pledged 5,500,000 shares of
common stock of the Company as collateral for the Benchmark note
described in Note 6(e).
During the year ended September 30, 1997:
g) The Company purchased the Corsicana Field Prospect in Navarro
County, Texas from a stockholder. The purchase price was
2,000,000 shares of common stock and a promissory note in the
amount of $1,300,000.
h) The Company was indebted to the same stockholder in the amount
of $10,000, on a note dated January 18, 1997. This note had an
initial principal amount of $80,000.
i) The Company occupies space in facilities leased by the same
stockholder. No rent was paid on this space through September
30, 1997.
Where possible the Company prefers to have Rife Oil Properties,
Inc. act as operator of the oil and natural gas properties and
prospects in which it owns an interest.
M. O. Rife III, the Company's Chairman, owns 100% of Rife Oil
Properties, Inc., and Rife Oil Properties, Inc. is one of the
Company's major stockholders. As mentioned in item (d) above,
and also in Note 12 (e), the Company has an option to acquire
Rife Oil Properties, Inc.
NOTE 11 - CONSULTING AGREEMENTS
The Company has entered into various cancelable consulting
agreements with third parties. Compensation for services
provided under these agreements has been paid in either Common
Shares or Common Share Purchase Warrants of the Company. During
the years ended September 30, 1998, the Company issued 1,100.000
shares of Common Stock, valued at $687,500, and 120,000 Common
Share Purchase Warrants, valued at $82,820.
During the year ended September 30, 1997, the Company issued
500,000 shares of Common Stock, valued at $362,500, in payment
of consulting agreements.
NOTE 12 - COMMITMENTS AND CONTINGENCIES
a) The Company has entered into various non-cancelable operating
lease agreements for office and warehouse space and equipment.
1) Warehouse facilities located in Fort Worth, Texas. The lease
term expires on September 30, 1999 and the Company has an
option to review the lease for a two year period.
Page 48 of 58
<PAGE> 51
POWER EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 12 - COMMITMENTS AND CONTINGENCIES (continued)
2) Office facilities located in San Antonio, Texas. The lease
term expires on November 30, 1998.
3) Office facilities located in Tyler, Texas. The lease term
expires on January 31, 2000.
4) Office facilities located in Tyler, Texas. The lease term on
January 31, 1999.
5) Various office equipment leases expiring at various times
through June 25, 2003.
Future minimum lease payments under the lease agreements for
each of the years ended September 30 are as follows:
<TABLE>
<S> <C>
1999 $ 98,485
2000 29,209
2001 17,421
2002 7,805
2003 3,048
----------
Total Minimum Lease Payments $ 154,968
==========
</TABLE>
Rent expense included in the financial statements for the year
ended September 30, 1998 totaled $83,347.
b) The Company has pledged 100% of the shares of Oil Seeps, Inc., a
wholly owned subsidiary, as collateral for a $250,000 promissory
note due on January 15, 1999. (See Note 6c).
c) The note payable to Benchmark described in Note 6 (e) is
collateralized by all fixed, real, tangible and intangible
assets owned by the Company. The collateral was released upon
repayment of the note on October 7, 1998.
d) A claim had been filed against ORS by a former employee. The
employee had demanded $75,000 in exchange for a full and final
release. The claim has been settled for $20,000 through
mediation in December 1998. The settlement amount has been
accrued in the financial statements.
e) The Company has an option to acquire Rife Oil Properties, Inc.,
a principal stockholder of the Company, for 3,000,000 shares of
Company Common Stock. The option expires on August 31, 1999.
f) The Company has entered into discussions to acquire certain
assets of Power Exploration Company, Inc., a company owned by
certain officers and directors of the Company, for 2,000,000
shares of common stock. These shares are being held in trust
pending the finalization of any acquisition and are not included
in shares issued or outstanding as of September 30, 1998.
Page 49 of 58
<PAGE> 52
POWER EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 13 - SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCIAL ACTIVITIES
During the year ended September 30, 1998:
a) A note payable plus accrued interest was satisfied through the
issuance of 1,000,000 shares of common stock. Principal and
interest converted totaled $1,343,381.
b) Common stock totalling 1,239,372 shares was issued on conversion
of $783,000 of debentures, plus accrued interest.
c) Common stock warrants valued at $382,335 were issued in
connection with the placement of various debt agreements.
d) Common stock warrants valued at $82,820 were issued in
connection with various consulting agreements.
e) Common stock warrants valued at $55,200 were issued as payment
of interest on a note.
f) Common stock totalling 1,100,000 shares valued at $687,500 was
issued as payment for services.
During the year ended September 30, 1997:
g) Oil and gas properties valued at $5,050,000 were acquired in
exchange for common stock and debt.
h) Subsidiaries were acquired in exchange for common stock valued
at $1,530,000.
i) Common stock totalling 434,702 shares was issued in conversion
of $467,000 of debentures.
NOTE 14 - GOING CONCERN
The accompanying consolidated financial statements have been
prepared assuming the company will continue as a going concern. As of September
30, 1998, the Company has a working capital deficit of $1,002,390 and an
accumulated deficit of $4,671,079. Based upon the Company's plan of operation,
the Company estimates that existing resources, together with funds generated
from operations will not be sufficient to fund the Company's working capital.
The Company is actively seeking additional equity financing. There can be no
assurances that sufficient financing will be available on terms acceptable to
the Company or at all. If the Company is unable to obtain such
Page 50 of 58
<PAGE> 53
POWER EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 14 - GOING CONCERN (continued)
financing, the Company will be forced to scale back operations which would have
an adverse effect on the Company's financial condition and results of operation.
NOTE 15 - SUBSEQUENT EVENTS
Subsequent to September 30, 1998, the Company
a) Repaid the Bank of Commerce Note. (See Note 6(b)].
b) Satisfied the Benchmark note through issuance of 500,000 shares
of Common Stock. (See Notes 6(e), 10(f) and 12(c)).
c) Satisfied the Debenture described in Note 7(b) through the
issuance of 650,000 shares of Common Stock.
d) Received $250,000 pursuant to a promissory note with Trident
III, LLC, due on April 20, 1999. The note bears interest at 10%
per annum. The Company has also issued 100,000 shares of Common
Stock to Trident III.
e) Purchased various oil, gas and/or mineral leases located in East
Texas along with 3-D Seismic Data. The purchase price was
$350,000, paid $50,000 in cash and $300,000 with a promissory
note bearing interest at 6% per annum and due January 31, 1999.
The note is collateralized by all properties and data acquired
through this purchase.
NOTE 16 - SUPPLEMENTAL INFORMATION ON OIL AND GAS OPERATIONS
(UNAUDITED)
The following supplemental unaudited information regarding the
Company's oil and gas activities is presented pursuant to the
disclosure requirements of Statement of Financial Accounting
Standards No. 69.
<TABLE>
<CAPTION>
September 30,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
Capitalized Costs Relating to Oil and Gas
Producing Activities at September 30, 1997
Unproved Oil and Gas Properties $ 1,312,505 $ 1,510,871
Proved Oil and Gas Properties 5,396,496 5,050,000
----------- -----------
6,709,001 6,560,871
Less: Accumulated Amortization and Impairment (5,220) (826)
----------- -----------
Net Capitalized Costs $ 6,703,781 $ 6,560,045
=========== ===========
</TABLE>
Page 51 of 58
<PAGE> 54
POWER EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 16 - SUPPLEMENTAL INFORMATION ON OIL AND GAS OPERATIONS (UNAUDITED)
(continued)
<TABLE>
<CAPTION>
<S> <C> <C>
Costs Incurred in Oil and Gas Producing Activities
for the Year Ending September 30, 1997
Property Acquisition Costs:
Proved $ 235,625 $ 5,050,000
Unproved -- 1,510,871
Exploration Costs 112,505 5,496
--------- -----------
$ 348,130 $ 6,566,367
========= ===========
Results of Operations for Oil and Gas Producing
Activities for the Year Ended September 30, 1997
Oil and Gas Sales $ 47,138 $ 22,714
Production (lifting) Costs (230,581) (53,346)
Amortization Expenses (4,394) (826)
--------- -----------
(187,837) (31,458)
Income Tax Expense -- --
---------- -----------
Results of Operations for Oil and Gas Producing
Activities (excluding corporate overhead and
financing costs) $ (187,837) $ (31,458)
========== ===========
</TABLE>
Reserve Information and Related Standardized Measure of
Discounted Future Net Cash Flows
The following supplemental unaudited presentation of proved
and proved developed reserve quantities and related
standardized measure of discounted future net cash flow
provides estimates only and does not purport to reflect
realizable values or fair market values of the Company's
reserves. Volumes reported for proved reserves are based on
reasonable estimates. These estimates are consistent with
current knowledge of the characteristics and production
history of the reserves. The Company emphasizes that reserve
estimates are inherently imprecise and that estimates of new
discoveries are more imprecise than those of producing oil
and gas properties. Accordingly, significant changes to these
estimates are expected as future information becomes
available. All of the Company's reserves are located in the
United States.
Proved reserves are those estimated reserves of crude oil
(including condensate and natural gas liquids) and natural
gas that geological and engineering data demonstrate with
reasonable certainly to be recoverable in future years from
known reservoirs under existing economic and operating
conditions. Proved developed reserves are those expected to
be recovered through existing wells, equipment, and operating
methods.
Page 52 of 58
<PAGE> 55
POWER EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 16 - SUPPLEMENTAL INFORMATION ON OIL AND GAS OPERATIONS
(UNAUDITED) (continued)
The standardized measure of discounted future net cash flows
is computed by applying year-end prices of oil and gas (with
consideration of price changes only to the extent provided by
contractual arrangements) to the estimated future production
of proved oil and gas reserves, less estimated future
expenditures (based on year-end costs) to be incurred in
developing and producing the proved reserves, less estimated
related future income tax expenses (based on year-end
statutory tax rates, with consideration of future tax rates
already legislated), and assuming continuation of existing
economic conditions. Future income tax expenses give effect
to permanent differences and tax credits but do not reflect
the impact of continuing operations including property
acquisitions and exploration. The estimated future cash flows
are then discounted using a rate of ten percent a year to
reflect the estimated timing of the future cash flows.
<TABLE>
<CAPTION>
Oil Oil
(mbbls) (mbbls)
------------- ------------
1998 1997
------------- -------------
<S> <C> <C>
Proved Developed and Undeveloped Reserves:
Beginning of Year 22,528.5 --
Purchases of Minerals in Place -- 22,529.8
Revisions of Previous Estimates (779.9) --
Production (4.1) (1.3)
------------- -------------
End of Year 21,744.5 22,528.5
============= =============
Proved Developed Reserves:
End of Year 3,785.0 4,568.6
============= =============
Standardized Measure of Discounted Future
Net Cash Flows at September 30, 1997:
Future Cash Inflows $ 315,295,000 $ 405,515,000
Future Production Costs (171,519,000) (189,256,000)
Future Development Costs (18,135,000 (18,135,000)
Future Income Tax Expenses (49,693,000) (78,686,000)
------------- -------------
Future Net Cash Flows 75,948,000 119,438,000
10% Annual Discount for Estimated Timing
of Cash Flows (37,063,000) (55,703,000)
------------- -------------
Standardized Measure of Discounted Future
Net Cash Flows Relating to Proved Oil and
Gas Reserves $ 38,885,000 $ 63,735,000
============= =============
</TABLE>
Page 53 of 58
<PAGE> 56
POWER EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 16 - SUPPLEMENTAL INFORMATION ON OIL AND GAS OPERATIONS
(UNAUDITED) (continued)
The following reconciles the change in the standardized measure
of discounted future net cash flows from proved reserves during
the year ended September 30, 1997:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Beginning of Year $ 63,735,000 --
Revenue from oil and gas production, net
Of production costs 188,000 31,000
Net changes in prices and production and
Development costs (36,098,000) --
Revisions of provious quantity estimates (2,395,000) --
Purchases of minerals in place -- 105,286,000
Net change in income taxes 16,567,000 (41,550,000)
Other (3,112,000) (37,000)
------------ ------------
End of Year $ 38,885,000 $ 63,735,000
============ ============
</TABLE>
Page 54 of 58
<PAGE> 57
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
EMPLOYEES
As of September 30, 1998, POWER employed 25 persons of whom 2 are
involved in field operations, 6 are involved in manufacturing, and 17 were
engaged in office and administrative activities. None of POWER's employees are
represented by unions or covered by collective bargaining agreements. To date,
POWER has not experienced any strikes or work stoppages due to labor problems
and considers its relations with its employees to be good. POWER also utilizes
the services of independent consultants on a contract basis.
EXECUTIVE OFFICERS
M. O. Rife III, Chairman; Director
Mr. Rife was born in Fort Worth, Texas in 1939. His family has been in the oil
industry for three generations. His grandfather retired from Gulf Oil as a
production superintendent and his father was an independent oil and gas operator
for over forty years. Mr. Rife attended Texas Christian University and began
working in the oil field when he was eighteen. He worked with his father for 15
years, then started his own company, RIFE OIL PROPERTIES, INC. He has been
involved in the drilling, completion and operating of over 500 wells throughout
the mid-continent Region.
Guy Pyron, Chief Executive Officer; Director; Executive Committee
Mr. Pyron first became interested in the oil and gas business in the early
1970's as an investor. After drilling several wells he formed Pyron Exploration
and Drilling Corp., "PEDCO," headquartered in Dallas, Texas. From the middle
1970's through the early 1990's his Company was directly involved in drilling
and operating over 500 oil and gas wells throughout the mid-continent region.
During this time, he raised several million dollars for drilling and
exploration, and achieved an overall success ratio of 80%. Mr. Pyron's
experience includes oversight of all operations of an oil and gas company. His
drilling company built its own drilling rigs, and drilled and operated wells for
its own account as well as for numerous independent operators both large and
small. Prior to becoming involved in the oil and gas business, Mr. Pyron was a
successful real estate broker and developer in the Dallas Metroplex. During his
real estate career, he was responsible for developing large parcels of tract
homes. Mr. Pyron also was responsible for raising equity capital totaling
millions of dollars for real estate investment. In 1994, Mr. Pyron sold his
company and moved to Tyler, Texas where he became a partner with long time
friend and Geophysicist, Jack Gallacher. In April 1996 they, along with
Geologist Stan Harris, developed 23 Cotton Valley Reef Prospects. With financial
partners from Houston, they leased more than 35,000 acres.
Jack D. Gallacher, Director
Mr. Gallacher has mapped many basins in the U.S. and Canada with seismic data
and subsurface well information. He developed sophisticated proprietary
techniques, which have contributed greatly to a very successful oil and gas
finding career of 53 years. Mr. Gallacher resided in Canada from 1950 to 1975,
where his exploration team Lakeshore Exploration Ltd. had a seventy percent
(70%) success ratio in
Page 55 of 58
<PAGE> 58
finding commercial reef production, along with several oil producing fields. He
moved to Tyler, Texas in 1975, and pursued the East Texas Smackover formation
with a fifty percent (50%) wildcatting success ratio, resulting in seven (7) new
Smackover fields and several other sand and carbonate fields. His companies were
Orbit Oil and Gas, and Power Exploration Company, Inc. During this later period,
he conceived and sponsored the development of several computer programs to aid
in cutting the costs of exploration by identifying the fairways where oil and
gas would be found. His data library includes some 10,000 miles of interpreted
seismic data, over 50,000 well logs and other important data used in making
maps, which define prospects in these areas. Mr. Gallacher recently created two
major regional geologic studies in East Texas that became part of a new program.
One of Mr. Gallacher's studies resulted in defining the currently active Cotton
Valley Reef trend that is attracting attention as a world class gas producing
play. Along with other partners, he raised sufficient capital to identify
prospects using 2D seismic, acquire in excess of 20,000 acres of leases, and
place the program with a large independent oil and gas firm to perform the
necessary 3D seismic studies and to drill the prospects. Drilling the first of
the prospects is now in progress. Messrs. Pyron and Gallacher are now developing
and leasing prospects across Texas, Louisiana and Mississippi under a
non-exclusive contract with Cheyenne Petroleum. This project resulted in 40,000
acres of new leases in 1997. After 3D seismic evaluation is completed; drilling
is scheduled to commence on these prospects in the third quarter of this year.
Joe Bennett, Chief Operating Officer; Director; Executive Committee
Mr. Bennett was born in Graham, Texas in 1946. His family has been involved in
the oil industry as independent oil and gas operators in North Texas for three
generations. Mr. Bennett attended the University of Texas at Austin studying
petroleum engineering. At the age of sixteen he began working summers in the oil
field for the family business. He has over 30 years of experience in developing
exploration projects, drilling and completing wells, and all phases of
operations. From 1976 to 1980 Mr. Bennett helped organize and start up an
aircraft overhaul business that employed over 100 people. As C.O.O., he was
responsible for all operations and marketing. In 1981 Mr. Bennett became
President and CEO of Bennett Resources, Inc. As head of the family business, he
directed the development of exploration projects in Texas, Oklahoma, Kansas,
Illinois, Kentucky and Tennessee. In 1994 Mr. Bennett joined Rife Oil
Properties, Inc. as VP Operations. His primary responsibilities were to oversee
the company's stripper well acquisition program and to manage all operations of
these properties using new production technology. Mark S. Zouvas, Chief
Financial Officer; Executive Committee
Mr. Zouvas has a BA from the University of California at Berkeley (Accounting
and Real Estate). As a staff auditor with Price Waterhouse, he performed
services for clients in the banking and real estate industries. Mr. Zouvas has
been involved in several venture capital transactions over the past five years.
He is a Licensed Real Estate Broker in California.
The Issuer has a 5-person board of directors, all of which positions are
currently filled. The Directors and Executive Officers of the Issuer, their ages
and present positions held with the Issuer are:
<TABLE>
<CAPTION>
NAME AGE POSITION HELD
<S> <C> <C>
M. O. Trey Rife III 58 Chairman of the Board & Director
Thom Schliem 48 Director
Guy Pyron 59 Chief Executive Officer & Director
Jack Gallacher 76 Director
Pattye J. Hill 50 Treasurer
Joe Bill Bennett 52 Vice President & Director
Mark Zouvas 35 Secretary & Chief Financial Officer
</TABLE>
The Issuer's Directors will serve in such capacity until the next annual meeting
of the Issuer's shareholders and until their successors have been elected and
qualified. There are no familial relationships among the Issuer's officers and
directors, nor are there any arrangements or understandings between any of the
officers
Page 56 of 58
<PAGE> 59
or directors of the Issuer or any other person pursuant to which any officer or
director was or is to be selected as an officer or director.
ITEM 10. EXECUTIVE COMPENSATION
<TABLE>
<CAPTION>
Name and Principal Occupation Salary Securities Under Option
<S> <C> <C>
M.O. Rife, III $60,720 None
Chairman of the Board & Director
Guy Pyron $60,000 None
Chief Executive Officer & Director
Thomas Schliem None None
Director
Jack Gallacher None None
Director
Joe Bill Bennet $60,720 None
Vice President & Director
Mark Zouvas $60,000 None
Chief Financial Officer
Pattye Hill $38,256 None
Treasurer
</TABLE>
DIRECTORS/EMPLOYEES STOCK OPTIONS
OUTSTANDING OPTIONS
The Issuer currently has no stock option plan for its officers and directors.
INDEBTEDNESS TO COMPANY
None of the directors, executive officers or senior officers of the Issuer or
any subsidiary, or any associates or affiliates of any of them, is or has been,
indebted to the Issuer at any time since the beginning of the last completed
financial year of the Issuer.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The authorized capital of the Issuer currently consists of 50,000,000 shares of
$0.02 par common stock. There is issued and outstanding as of June 1, 1998,
11,060,925 shares.
To the knowledge of the directors and officers of the Issuer, as of September
30, 1998, only the following persons beneficially own, directly or indirectly,
or exercise control or direction over, shares carrying more than five percent
(5%) of the voting rights attached to all outstanding common shares of the
Issuer:
Page 57 of 58
<PAGE> 60
<TABLE>
<CAPTION>
Name and Address of Beneficial Owner Amount of Beneficial Ownership Percent of Class
<S> <C> <C>
Cede & Co. 2,686,099 shares 24.2846%
P.O. Box 222
Bowling Green Station
New York, NY 10274
Rife Oil Properties, Inc. 1,500,000 shares 13.5613%
5020 Collinwood Avenue,
Suite 201
Fort Worth, TX 76107
Caye Chapel 800,000 shares 7.2327%
3050 Post Oak Road
Suite 1760
Houston, TX 77056
George Gafford, Trustee 4,000,000 shares 36.1633%
5020 Collinwood Avenue
Fort Worth, TX 76017
</TABLE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Rife Oil Properties, Inc., the 49% shareholder of the Issuer, when the shares
held by George Gafford Trustee are included, is owned by the M. O. Rife III
Trust A, which is controlled by Mr. Rife who is the Chairman of the Board and a
Director of the Issuer and who has entered into the following agreements with
the Issuer:
(a) On May 16, 1997 the Issuer acquired Oil Retrieval Systems, Inc. and its
portable swabbing technology, assets and liabilities for 2,500,000 shares of the
Issuer's restricted common stock. (b) On June 11, 1997, the Issuer purchased the
Corsicana Field in Navarro County, Texas from Rife Oil Properties, Inc. The
purchase price was 2,000,000 shares of restricted common stock and a convertible
promissory note for $1,300,000, with 6% interest per annum. all due on November
11, 1997. The note was secured by 1,000,000 shares of common stock of the issuer
held in escrow with George Gafford, Attorney, as Trustee. By agreement of the
parties the note for $1,300,000 was converted to these shares on December 15,
1997.
(c) On November 26, 1997, the Issuer borrowed $100,000 from Rife Oil Properties,
Inc., subject to a promissory note bearing interest at the rate of 8% per annum
and due on May 26, 1998.
(d) The Issuer occupies office space leased from Rife Oil Properties, Inc.
Commencing October 1, 1997 the Issuer pays rent in the amount of $2,000 per
month.
(e) In September, 1998, Mr. Rife allowed the Issuer to use two 1988 Kenworth
trucks owned by Rife Oil Properties, Inc. as pledged collateral to secure the
$50,000 financing from Dallas Cady Family LLP.
ITEM 13. EXHIBITS AND REPORTS
Page 58 of 58
<PAGE> 61
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.
POWER EXPLORATION, INC.
By /s/ Mark S. Zouvas
------------------------------------------
Mark S. Zouvas, Chief Financial Officer
January 21, 1999
<PAGE> 62
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
EX-2.1 PLAN OF REORGANIZATION AND CHANGE OF SITUS BY WHICH TITAN ENERGY
CORP., INC. AND POWER EXPLORATION, INC. CHANGES ITS PLACE OF
INCORPORATION. MAY 31, 1998
EX-2.2 AGREEMENT AND PLAN OF MERGER BETWEEN POWER EXPLORATION, INC. (NEVADA)
AND POWER EXPLORATION, INC. (COLORADO). AUGUST 1, 1998
EX-2.3 ARTICLES OF MERGER BETWEEN POWER EXPLORATION, INC. (NEVADA) AND POWER
EXPLORATION, INC. (COLORADO). AUGUST 1, 1998
EX-2.4 ACTION BY INCORPORATOR. ELECTION OF OFFICERS AND DIRECTORS OF POWER
EXPLORATION, INC. (NEVADA). MAY 31, 1998
EX-3.1 ARTICLES OF INCORPORATION OF IMPERIAL ENERGY. DATED OCTOBER 31, 1979.
INCORPORATED BY REFERENCE FROM THE COMPANY'S PREVIOUS SEC FILINGS.
EX-3.2 AMENDMENT TO THE ARTICLES OF INCORPORATION. JUNE 26, 1984.
INCORPORATED BY REFERENCE FROM THE COMPANY'S PREVIOUS SEC FILINGS.
EX-3.3 AMENDMENT TO THE ARTICLES OF INCORPORATION. SEPTEMBER 25, 1996.
INCORPORATED BY REFERENCE FROM THE COMPANY'S PREVIOUS SEC FILINGS.
EX-3.4 MINUTES OF A SPECIAL MEETING OF SHAREHOLDERS OF ISSUER CHANGING NAME
FROM FUNSCAPE CORPORATION TO OIL RETRIEVAL SYSTEMS, INC. DATED MAY 14,
1997. INCORPORATED BY REFERENCE FROM THE COMPANY'S PREVIOUS SEC
FILINGS.
EX-3.5 AMENDMENT TO THE ARTICLES OF INCORPORATION, DATED JUNE 15, 1997,
CHANGING NAME FROM FUNSCAPE CORPORATION TO OIL RETRIEVAL SYSTEMS, INC.
INCORPORATED BY REFERENCE FROM THE COMPANY'S PREVIOUS SEC FILINGS.
EX-3.6 BY LAWS OF THE CORPORATION. INCORPORATED BY REFERENCE FROM THE
COMPANY'S PREVIOUS SEC FILINGS.
EX-3.7 ARTICLES OF INCORPORATION OF POWER EXPLORATION, INC. (NEVADA). DATED
MAY 14, 1998
EX-3.8 BY-LAWS OF POWER EXPLORATION, INC. (NEVADA). DATED JUNE 1, 1998
EX-3.9 MINUTES OF THE ANNUAL MEETING OF THE SHAREHOLDERS OF TITAN ENERGY
CORP. AND POWER EXPLORATION, INC. DATED JULY 24, 1998
EX-3.10 MINUTES OF A SPECIAL MEETING OF THE BOARD OF DIRECTORS IN WHICH
OFFICERS AND DIRECTORS ARE ELECTED, DATED JULY 24, 1998.
EX-4.1 12% CONVERTIBLE DEBENTURES, WITH CONVERSION RIGHTS BASED UPON 80% OF
MARKET PRICE AT DATE OF CONVERSION. INCORPORATED BY REFERENCE FROM THE
COMPANY'S PREVIOUS SEC FILINGS.
</TABLE>
<PAGE> 63
<TABLE>
<S> <C>
EX-10.1 CONTRACT FOR ACQUISITION OF OIL RETRIEVAL SYSTEMS, INC. DATED MAY 16,
1997. INCORPORATED BY REFERENCE FROM THE COMPANY'S PREVIOUS SEC
FILINGS.
EX-10.2 CONTRACT FOR ACQUISITION OF OIL LEASES IN THE CORSICANA OIL FIELD,
DATED JUNE 11, 1997. INCORPORATED BY REFERENCE FROM THE COMPANY'S
PREVIOUS SEC FILINGS.
EX-10.3 LETTER AGREEMENT WITH PROMISSORY NOTE BETWEEN ISSUER AND M. PATTON
HOLDINGS, LTD., RE OIL SEEPS, INC., DATED JUNE 17, 1997, ACQUIRING
RIGHTS IN EROMANGA BASIN IN AUSTRALIA. INCORPORATED BY REFERENCE FROM
THE COMPANY'S PREVIOUS SEC FILINGS.
EX-10.4 LETTER OF INTENT DATED AUGUST 11, 1997, BETWEEN ISSUER AND POWER
EXPLORATION COMPANY, INC., GOVERNING THE ACQUISITION OF OIL AND GAS
LEASES IN POLK COUNTY, TEXAS. INCORPORATED BY REFERENCE FROM THE
COMPANY'S PREVIOUS SEC FILINGS.
EX-10.5 CONTRACT WITH POWER EXPLORATION, TECHSTAR EXPLORATION AND
ROEMER-SWANSON ENERGY TO ACQUIRE MINERAL LEASES IN POLK COUNTY, TEXAS,
DATED DECEMBER 2, 1997. INCORPORATED BY REFERENCE FROM THE COMPANY'S
PREVIOUS SEC FILINGS.
EX-10.6 AUTHORITY TO PROSPECT FOR PETROLEUM (ATP-615) IN THE EROMANGA BASIN,
AND COVERING 12,904,618 ACRES IN AUSTRALIA. INCORPORATED BY REFERENCE
FROM THE COMPANY'S PREVIOUS SEC FILINGS.
EX-10.7 AGREEMENT WITH BENCHMARK EQUITIES FOR $500,000 LINE OF CREDIT, DATED
MAY 7, 1998. INCORPORATED BY REFERENCE FROM THE COMPANY'S PREVIOUS SEC
FILINGS.
EX-10.8 AGREEMENT WITH COLDWATER CAPITAL, EFFECTIVE JUNE, 1998, FOR THE
PROVISION OF $2,000,000 LOAN TO BE UTILIZED TO INITIATE THE RECOVERY
PROJECT ON THE CORSICANA FIELD. INCORPORATED BY REFERENCE FROM THE
COMPANY'S PREVIOUS SEC FILINGS.
EX-10.9 AGREEMENT WITH M.O. RIFE IV FOR A $50,000 LOAN DATED APRIL 7, 1998,
WITH EXTENSION AGREEMENT DATED OCTOBER 5, 1998.
EX-10.10 AGREEMENT WITH THE BANK OF COMMERCE FOR A $100,000 LINE OF CREDIT
DATED JULY 27, 1998.
EX-10.11 AGREEMENT WITH THE ZOUVAS FAMILY TRUST FOR A $100,000 LOAN DATED
AUGUST 13, 1998
EX-10.12 AGREEMENT WITH BUSINESS EXCHANGE INVESTMENTS, INC. FOR A $250,000 LOAN
DATED SEPTEMBER 15, 1998
EX-10.13 AGREEMENT WITH THE DALLAS CADY FAMILY, LLP FOR A $50,000 LOAN SECURED
BY TWO 1988 KENWORTH TRUCKS DATED SEPTEMBER 15, 1998
EX-10.14 AGREEMENT WITH TRIDENT III,LLC FOR A $250,000 LOAN DATED OCTOBER 21,
1998, WITH PROMISSORY NOTE
</TABLE>
<PAGE> 64
<TABLE>
<S> <C>
EX-10.15 AGREEMENT OF SALE AND PURCHASE WITH MB EXPLORATION, LLC DATED DECEMBER
15, 1998
EX-10.16 AMENDMENT TO SALE AND PURCHASE AGREEMENT WITH MB EXPLORATION, LLC,
DATED DECEMBER 15, 1998
EX-16.1 LETTER DATED JUNE 8, 1998 FROM TERRENCE J. DUNNE, CPA CONCERNING
CHANGE OF ACCOUNTANTS AND STATING NO DISAGREEMENTS WITH ISSUER.
INCORPORATED BY REFERENCE FROM THE COMPANY'S PREVIOUS SEC FILINGS.
EX-21.1 SUBSIDIARIES OF THE ISSUER. INCORPORATED BY REFERENCE FROM THE
COMPANY'S PREVIOUS SEC FILINGS.
EX-99.1 OIL LEASE INFORMATION PER INDUSTRY GUIDE FOR CORSICANA FIELD NEAR
DALLAS, TEXAS. INCORPORATED BY REFERENCE FROM THE COMPANY'S PREVIOUS
SEC FILINGS.
EX-99.2 OIL LEASE INFORMATION PER INDUSTRY GUIDE FOR POLK COUNTY LEASES IN
EAST TEXAS. INCORPORATED BY REFERENCE FROM THE COMPANY'S PREVIOUS SEC
FILINGS.
EX-99.3 GLOSSARY OF SELECTED OIL & GAS TERMS
</TABLE>
<PAGE> 1
EXHIBIT 2.1
PLAN OF REORGANIZATION AND CHANGE OF SITUS
By Which
TITAN ENERGY CORP., INC.
(A COLORADO CORPORATION)
And
POWER EXPLORATION, INC.
(A NEVADA CORPORATION)
CHANGES ITS PLACE OF INCORPORATION
THIS PLAN OF REORGANIZATION is made effective and dated this day of May
31, 1998, by and between the above referenced corporations, sometimes referred
to herein as "the Public Colorado Company" and "the Private Nevada Company",
respectively.
I. THE PARTIES
1. TITAN ENERGY CORP., INC. ("the Public Colorado Company") is a Colorado
Corporation
2. POWER EXPLORATION, INC. ("the Private Nevada Company") is a Nevada
Corporation, having been created (or to be created) on behalf the Titan
Energy Corp., Inc. for the purpose of this change of situs.
II. RECITALS
A. THE CAPITAL OF THE PARTIES:
1. THE CAPITAL OF THE PUBLIC COMPANY consists of 15,000,000 shares of
common voting stock of $0.02 par value authorized, of which 11,060,925
shares are issued and outstanding.
<PAGE> 2
2. THE CAPITAL OF THE PRIVATE COMPANY consists of 50,000,000 shares of common
voting stock of $0.02 par value authorized, of which no shares have been or
are issued or outstanding.
B. THE BACKGROUND FOR THE REORGANIZATION: The Public Colorado Company desires
to locate its Corporate Situs in Nevada.
C. THE DECISION TO REORGANIZE TO CHANGE SITUS: The parties have resolved,
accordingly, to relocate the public company, by means of the following
reorganization, by which the Public Company will move to Nevada.
III. PLAN OF REORGANIZATION
A. CHANGE OF SITUS: The Public Colorado Company and the Private Nevada
Company are hereby reorganized for the sole and singular purpose of
changing the respective place of incorporation of Titan Energy Corp., Inc.
from Colorado to Nevada; such that immediately following Reorganization:
1. MERGER: Titan Energy Corp., Inc., of Colorado shall merge with and into
Power Exploration, Inc. of Nevada.
2. THE PUBLIC COMPANY: The former Titan Energy Corp., Inc., of Colorado
will become and thereafter be Power Exploration, Inc. of Nevada. The
Public Company will retain its corporate personality and status, and
will continue its corporate existence uninterrupted, in and through,
and only in and through the Nevada Corporation.
B. EFFECTIVE DATE: This Plan of Reorganization shall become effective
immediately upon approval and adoption by the Corporate parties hereto, in
the manner provided by the law of its place of incorporation and its
<PAGE> 3
constituent corporate documents, the time of such effectiveness being
called the effective date hereof.
C. SURVIVING CORPORATIONS: The Nevada Company shall survive the
Reorganization as indicated above, after Reorganization, with the
operational history of the Colorado Company before the Reorganization,
and with the duties and relationships to its shareholders unchanged by
the Reorganization and with all of its property and with its shareholder
list unchanged. The Colorado Company shall cease to exist as a separate
entity and shall survive as and only as the Nevada Company.
D. FURTHER ASSURANCE, GOOD FAITH AND FAIR DEALING: The Directors of each
Company shall and will execute and deliver any and all necessary
documents, acknowledgments and assurances. They shall do all things proper
to confirm or acknowledge any and all rights, titles and interests created
or confirmed herein; and both companies covenant hereby to deal fairly and
good faith with each other and each of the shareholders of Titan Energy
Corp., Inc.
E. CONVERSION OF OUTSTANDING SHARES: Forthwith upon the effective date
hereof, each and every one share of stock in the Public Colorado Company
shall be converted to one share of the Nevada Company. Any such holders of
shares may surrender them to the transfer agent for common stock of the
former Public Colorado Company, which transfer agent shall remain and
continue as transfer agent for the now Public Nevada Company.
THIS REORGANIZATION AGREEMENT is executed on behalf of each Company by its
duly authorized representatives, and attested to, pursuant
<PAGE> 4
to the laws of its respective place of incorporation and in accordance with its
constituent documents.
TITAN ENERGY CORP., INC. POWER EXPLORATION, INC.
(A Colorado Corporation) (A Nevada Corporation)
By: /s/ M.O. RIFE III By: /s/ MARK S. ZOUVAS
-------------------------- --------------------------
PRESIDENT, DIRECTOR MARK S. ZOUVAS
INCORPORATOR AND SOLE
INITIAL OFFICER AND DIRECTOR
<PAGE> 1
EXHIBIT 2.2
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (hereinafter referred to as the "Plan")
is adopted and agreed to as of this 1st day of August, 1998, by and between
Power Exploration, Inc., a Nevada corporation (hereinafter referred to as
"NEVADA"), Power Exploration, Inc., a Colorado corporation (hereinafter
referred to as "COLORADO"). Together, NEVADA and COLORADO are hereinafter
sometimes referred to as the "Constituent Corporations."
WHEREAS, the respective Boards of Directors of the Constituent
Corporations deem it advisable for the mutual benefit of the Constituent
Corporations and the mutual benefit of the stockholders of the Constituent
Corporations that COLORADO be merged with and into the NEVADA in accordance
with the provision of the Corporation Law of the State of Nevada and Colorado
upon the terms and conditions hereinafter provided (the "Merger"), and such
Boards of Directors and stockholders have approved and adopted this Plan.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, provisions and covenants contained herein, the Constituent
Corporations adopt and agree to this Plan and prescribe the terms and
conditions of the Merger and the mode of carrying the same into effect as
follows:
ARTICLE I. MERGER
-----------------
1.1 The Merger shall be effective upon the issuance of a Certificate of
Merger by the Nevada Secretary of State with respect thereto (sometimes
hereinafter referred to as the "Effective Time"), at which time the Constituent
Corporations shall merge and become a single corporation.
1.2 NEVADA shall be the surviving corporation and shall succeed to all
the rights, privileges, immunities, franchises, debts due, liabilities,
obligations and powers of COLORADO and shall continue to be subject to all the
duties and liabilities of a corporation organized under the Corporation Law of
the State of Nevada (hereinafter, NEVADA will sometimes be referred to as the
"Surviving Corporation" as of the Effective Time or thereafter).
l.3 The effect of the Merger shall be as provided in the applicable
provisions of the Corporation Law of the State of Nevada.
ARTICLE II. SURVIVING CORPORATION
---------------------------------
2.1 The Certificate of Incorporation of NEVADA as amended and restated to
read as set forth in Attachment A hereto shall be in full force and effect as
the Certificate of Incorporation of the Surviving Corporation, until it shall
thereafter be further amended in accordance with law.
2.2 The Bylaws of NEVADA as amended and restated to read as set forth in
Attachment B hereto, shall be in full force and effect as the Bylaws of the
Surviving
<PAGE> 2
Corporation until they shall thereafter be further amended in accordance with
law.
2.3 The officers and Board of Directors of the Surviving Corporation
shall be:
Directors: M.O. Rife III, Guy Pyron, Joe Bill Bennett, Jack Gallacher and
Thom Schliem
Officers: Guy Pyron, Joe Bill Bennett, Mark Zouvas and Pattye Hill
Such persons shall serve in such positions until their successors are duly
elected and qualified under the provisions of the Bylaws of the Surviving
Corporation, or until their earlier death, resignation or removal.
ARTICLE III. EFFECT OF MERGER AND INVESTMENT UPON THE SHARES OF THE
CONSTITUENT CORPORATIONS
3.1 (a) Conversion of NEVADA Shares. As of the Effective Time, all of
the shares of NEVADA common stock (the "Old NEVADA Stock"), $0.02 par value,
issued and outstanding prior to the Effective Time shall be converted into and
become as a matter of law and without any action on the part of the holder
thereof 10 shares of the Surviving Stock (the "NEVADA Shares"). At the
Effective Time, the former stockholder of record of the Old NEVADA stock shall
receive that number of the shares of the Surviving Stock.
(b) Conversion of COLORADO Shares. As of the Effective Time, all of
the shares of COLORADO common stock (the "Old COLORADO Stock"), $0.02 par
value, issued and outstanding prior to the Effective Time shall be converted
into and become as a matter of law and without any action on the part of the
holder thereof 11,060,925 shares of the Surviving Stock (the "NEVADA Shares").
At the Effective Time, each former stockholder of record of the Old COLORADO
Stock shall receive the same number of the shares of the Surviving Stock as
they previously owned.
(c) As a result of paragraphs 3.1(a) and 3.1(b), the stockholders of
the Surviving Corporation shall be as follows:
Surviving Corporation
Name Shares %
---- ------ -
COLORADO 11,060,925 100
Current Shareholders of NEVADA 10 0
Total 11,060,935 100
<PAGE> 3
3.2 Within ten (10) days after execution of this Agreement, the Surviving
Corporation shall cause a Certificate of Merger to be issued by the Nevada
Secretary of State.
3.3 As of the Effective Time, the retained earnings of the Surviving
Corporation shall be increased by the stated capital, capital surplus and
retained earnings of COLORADO.
3.4 Upon receipt of certificates representing the shares of NEVADA and
COLORADO common stock issued and outstanding immediately prior to the Effective
Time, NEVADA shall cause a certificate representing the number of shares of the
Surviving Corporation stock which such holder is entitled to receive
respectively.
ARTICLE IV. TERMINATION
-----------------------
4.1 This Agreement may be terminated at any time prior to the Effective
Time:
(a) by the mutual consent of the parties; or
(b) by either NEVADA or COLORADO if any permanent injunction or other
order of a court or other competent Governmental Authority preventing the
consummation of the Merger shall have become final and non-appealable.
4.2 In the event of the termination, this Agreement shall become void and
have no effect, without any liability on the part of any part or its directors,
officers or stockholders.
ARTICLE V. MISCELLANEOUS
------------------------
5.1 The Surviving Corporation shall cause the Surviving Stock to become
eligible for the trading on the OTC Bulletin Board as soon as practicable
following the Effective Time. In the event that such common stock does not
become so eligible for trading, each of the holders of shares of the Old NEVADA
Stock at the Effective Time shall surrender to the Surviving Corporation all
shares of the Surviving Corporation's common stock received under Section 3.1
for cancellation.
5.2 This Plan shall be construed and interpreted according to the laws of
the State of Nevada.
<PAGE> 4
5.3 This Plan may be executed in any number of counterparts, each of
which shall be deemed an original and all of which taken together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, NEVADA and COLORADO have caused their respective
corporate seals to be hereunto affixed and these presents to be signed by their
respective officers thereunto duly authorized, all as of the day and year first
above written.
POWER EXPLORATION, INC. POWER EXPLORATION, INC.
A COLORADO CORPORATION A NEVADA COLORADO
By: /s/ JOE BILL BENNETT By: /s/ MARK ZOUVAS
-------------------------------- ---------------------------------
Joe Bill Bennett, Executive Vice Mark Zouvas, Incorporator
President
<PAGE> 1
EXHIBIT 2.3
ARTICLES OF MERGER
THESE ARTICLES OF MERGER, adopted pursuant to Nevada Corporation Law, NRS
Chapter 92A, wherein TITAN ENERGY CORP., INC. and POWER EXPLORATION, INC., have
adopted a Plan of Merger whereby POWER EXPLORATION, INC., shall be the
surviving corporation.
ARTICLE I.
TITAN ENERGY CORP., INC. is a corporation duly organized and existing
under the laws of the State of Colorado. POWER EXPLORATION, INC. is a
corporation duly organized and existing under the laws of the State of Nevada.
POWER EXPLORATION, INC. shall be the surviving corporation and shall
succeed to all the rights, privileges, immunities, franchises, debts due,
liabilities, obligations and powers of Titan Energy Corp., Inc. and shall
continue to be subject to all the duties and liabilities of a corporation
organized under the Corporation Law of the State of Nevada.
ARTICLE II.
The Plan of Merger was approved by the Shareholders of the Parties hereto
as hereafter described:
The Plan of Merger was adopted by TITAN ENERGY CORP., INC., in accordance
with the Corporation Law of the State of Colorado, as follows:
Total Shares Voting For The Against Per Cent in
Outstanding Merger Favor
11,060,925 7,155,312 -0- 64.69%
The Shareholders approved this action on July 24, 1998.
The Plan of Merger was adopted by POWER EXPLORATION, INC., in accordance
with the Corporation Law of the State of Nevada, as follows:
Total Shares Voting For The Against Per Cent in
Outstanding Merger Favor
10 10 -0- 100%
Articles of Merger
Page 1 of 3
<PAGE> 2
The Shareholders approved this action on August 1, 1998.
Therefore the Plan of Merger was adopted by both Corporations.
ARTICLE III.
Prior to the merger, Power Exploration, Inc, shares consisted of 50,000,000
shares of common voting stock, of $.02 par value authorized, 10 shares were
issued and outstanding. These shares shall be converted into and become as a
matter of law and without any action on the part of the holder thereof, 10
shares of the surviving Nevada Corporation - POWER EXPLORATION, INC.
Prior to the merger, TITAN ENERGY CORP., INC., shares consisted of
15,000,000 shares of common voting stock, of $0.02 par value, with 11,060,925
shares issued and outstanding. These shares shall be converted into and become
as a matter of law and without any action on the part of the holder thereof
11,060,925 shares of POWER EXPLORATION, INC. a Nevada Corporation and each
former stockholder of record of the TITAN ENERGY CORP., INC. shall receive the
same number as they previously owned.
Therefore, the merger shall result in 11,060,935 shares issued and
outstanding of common voting stock of $.02 par value, with 50,000,000 shares
authorized.
ARTICLE IV.
The entire Agreement and Plan of Merger shall be held on file with the
Resident Agent for POWER EXPLORATION, INC. at 3230 E. Flamingo Road, Suite 156,
Las Vegas, Nevada 89121 and at the Corporate Office at 5020 Collinwood, Ste.
201, Fort Worth, Texas 76107.
Articles of Merger
Page 2 of 3
<PAGE> 3
WE THE UNDERSIGNED, have executed this document on behalf of each
Corporation, as its duly authorized representatives, pursuant to the Corporate
Laws of its respective place of incorporation and in accordance with its
constituent documents.
TITAN ENERGY CORP., INC. POWER EXPLORATION, INC.
(A COLORADO CORPORATION) (A NEVADA CORPORATION)
/s/ JOE BILL BENNETT /s/ MARK S. ZOUVAS
- ------------------------- -------------------------
Joe Bill Bennett Mark S. Zouvas
VICE-PRESIDENT VICE PRESIDENT & C.F.O.
/s/ PATTYE J. HILL /s/ PATTYE J. HILL
- ------------------------- -------------------------
Pattye J. Hill Pattye J. Hill
SECRETARY TREASURER
STATE OF TEXAS )
COUNTY OF TARRANT )
This instrument was acknowledged before me on August 19, 1998 by Joe Bill
Bennett as Vice President, and Pattye Hill as Secretary of Titan Energy Corp.,
Inc., a Colorado Corporation; and Mark S. Zouvas as Vice President and C.F.O.
and Pattye Hill as Secretary of Power Exploration, Inc., a Nevada Corporation,
on behalf of said corporations.
/s/ BEVERLY ANN GLASER
------------------------------
Beverly Ann Glaser
Notary Public in and for the
State of Texas
[SEAL]
Articles of Merger
Page 3 of 3
<PAGE> 1
EXHIBIT 2.4
ACTION BY INCORPORATOR
POWER EXPLORATION, INC.
---------------------------------
A Nevada Corporation
The undersigned, being the Incorporator names in the Articles of
Incorporation of the above corporation, a Nevada corporation, does hereby adopt
the following resolutions:
1. ADOPTION OF BY-LAWS.
RESOLVED, that the By-Laws bearing the heading "By-Laws of POWER
EXPLORATION, INC." be and the same hereby are adopted as and for the By-Laws of
the corporation.
RESOLVED FURTHER, that a copy of such By-Laws be inserted in the Book
of Minutes of the corporation.
2. ELECTION OF OFFICERS.
RESOLVED, that the following persons be and they hereby are elected as
officers of this corporation to hold the office or offices set forth opposite
their respective names until the first meeting of the Board of Directors
following the next annual meeting of shareholders of this corporation and until
their respective successors are elected and qualified or until their earlier
resignation or removal, such officers shall serve at the pleasure of the Board
of Directors of this corporation:
OFFICE NAME
------ ----
President and CEO Guy Pyron
Vice-President and COO Joe Bill Bennett
Secretary and CFO Mark S. Zouvas
Treasurer Pattye Hill
<PAGE> 2
3. ELECTION OF DIRECTORS.
RESOLVED, that the following persons are hereby elected the Directors
of this corporation, to serve until the first annual meeting of the Directors of
the corporation and until their successors are elected and qualified or until
their earlier resignation or removal or their office is declared vacant in the
manner provided in the By-Laws of the corporation: M.O. RIFE, III, GUY PYRON,
JOE BILL BENNETT, JACK GALLACHER and THOM SCHLIEM.
4. APPROVAL OF PLAN OF REORGANIZATION.
RESOLVED, that the plan of reorganization and the change of situs as of
May 31, is hereby approved and/or authorized and a copy of which is attached.
DATED: May 31, 1998
/s/ MARK S. ZOUVAS
- -----------------------------------
Mark S. Zouvas
Incorporator
ATTEST:
/s/ M.O. RIFE III
- -----------------------------------
M.O. Rife, III
Chairman of the Board
<PAGE> 1
EXHIBIT 3.7
ARTICLES OF INCORPORATION
OF
POWER EXPLORATION, INC.
ARTICLE I. The name of the Corporation is POWER EXPLORATION, INC.
ARTICLE II. Its principal and registered office in the State of Nevada is
3230 E. Flamingo Road, Suite 156, Las Vegas, NV 89121. The
initial agent for services of process at that address is Gateway
Enterprises, Inc.
ARTICLE III. The purposes for which the corporation is organized are to engage
in any activity or business not in conflict with the laws of the
State of Nevada or of the United States of America. The period
of existence of the corporation shall be perpetual.
ARTICLE IV. The corporation shall have authority to issue an aggregate of
Fifty Million (50,000,000) shares of common voting equity stock
of par value ($0.02) per share, and no other class or classes of
stock, for a total capitalization of $1,000,000. The
Corporation's capital stock may be sold from time to time for
such consideration as may be fixed by the Board of Directors,
provided that no consideration so fixed shall be less than par
value.
ARTICLE V. No shareholder shall be entitled to any preemptive or
preferential rights to subscribe to any unissued stock or any
other securities which the corporation may now or hereafter be
authorized to issue, nor shall any shareholder possess cumulative
voting rights at any shareholders meeting for the purpose of
electing Directors.
ARTICLE VI. The affairs of the corporation shall be governed by a Board of
Directors of not less than one (1) person. The Incorporator whose
name and address is Mark S. Zouvas, 5020 Collinwood, Ste. 201,
Fort Worth, Texas 76107, shall serve as Sole Initial Director for
the purpose of appointing the Initial Board of Directors.
ARTICLE VII. The Capital Stock after the amount of the subscription price or
par value shall not be subject to assessment to pay the debts of
the corporation, and no stock issued as paid up shall ever be
assessable or assessed.
<PAGE> 2
ARTICLE VIII. The initial By-Laws of the corporation shall be adopted by its
Board of Directors. The power to alter, amend or repeal the
By-Laws, or adopt new By-Laws, shall be vested in the Board of
Directors, except as otherwise may be specifically provided in
the By-Laws.
ARTICLE IX. The name and address of the Incorporator of the corporation is
Mark S. Zouvas, 5020 Collinwood, suite 201, Fort Worth, Texas
76107.
I THE UNDERSIGNED, being the Incorporator hereinbefore named for the
purpose of forming a Corporation pursuant to the General Corporation Law of the
State of Nevada, do make and file these Articles of Incorporation, hereby
declaring and certifying that the facts herein stated are true, and accordingly
have set my hand hereunto this day, May 13, 1998.
/s/ MARK S. ZOUVAS
----------------------
Mark S. Zouvas
Incorporator
State of Texas
:ss
County of Tarrant
I, Pattye J. Hill, a Notary public hereby certify that on the 14th day
of May, 1998, Mark S. Zouvas, personally appeared before me who, being first
duly sworn, personally declared that he is the person who signed the foregoing
document as Incorporator and that the statements therein contained are true.
DATED this 14th day of May, 1998.
My Commission Expires:
7-11-98 /s/ PATTYE J. HILL
- ------------------ ------------------------------------
Notary Public in and for the State
of Texas, residing in Tarrant County, Texas
[SEAL]
Articles of Incorporation - POWER EXPLORATION, INC.
Page 2 of 2
<PAGE> 1
EX-3.8 BY-LAWS
BY-LAWS
OF
POWER EXPLORATION, INC.
INCORPORATED UNDER THE LAWS OF
THE STATE OF NEVADA
<PAGE> 2
BY-LAWS
OF
POWER EXPLORATION, INC.
A Nevada Corporation
ARTICLE I - OFFICES
The registered office of the Corporation in the State of Nevada shall be located
in the City and State designated in the Articles of Incorporation. The
Corporation may also maintain offices at such other places within or without the
State of Nevada as the Board of Directors may, from time to time, determine.
ARTICLE II - MEETING OF SHAREHOLDERS
Section 1 - Annual Meetings: (Chapter 78.310)
The annual meeting of the shareholders of the Corporation shall be held at the
time fixed, from time to time, by the Directors.
Section 2 - Special Meetings: (Chapter 78.310)
Special meetings of the shareholders may be called by the Board of Directors or
such person or persons authorized by the Board of Directors and shall be held
within or without the State of Nevada.
Section 3 - Place of Meetings: (Chapter 78.310)
Meetings of shareholders shall be held at the registered office of the
Corporation, or at such other places, within or without the State of Nevada as
the Directors may from time to time fix. If no designation is made, the meeting
shall be held at the Corporation's registered office in the state of Nevada.
Section 4 - Notice of Meetings: (Section 78.370)
(a) Written or printed notice of each meeting of shareholders, whether annual
or special, signed by the president, vice president or secretary, stating
the time when and place where it is to be held, as well as the purpose or
purposes for which the meeting is called, shall be served either personally
or by mail, by or at the direction of the president, the secretary, or the
officer or the person calling the meeting, not less than ten or more than
sixty days before the date of the meeting, unless the lapse of the
- --------------------------------------------------------------------------------
*Unless otherwise stated herein all references to "Sections" in these Bylaws
refer to those sections contained in Title 78 of the Nevada Private Corporations
Law.
prescribed time shall have been waived before or after the taking of such
action, upon each shareholder of record entitled to vote at such meeting, and to
any other shareholder to whom the giving of notice may be required by law. If
mailed, such notice shall be deemed to be given when deposited in the United
States mail, addressed to the shareholder as it appears on the share transfer
records of the Corporation or to the current address, which a shareholder has
delivered to the Corporation in a written notice.
(b) Further notice to a shareholder is not required when notice of two
consecutive annual meetings, and all notices of meetings or of the taking
of action by written consent without a meeting to him or her during the
period between those two consecutive annual meetings; or all, and at least
two payments sent by first-class mail of dividends or interest on
securities during a 12-month period have been mailed addressed to him or
her at his or her address as shown on the records of the Corporation and
have been returned undeliverable.
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<PAGE> 3
Section 5 - Quorum: (Section 78.320)
(a) Except as otherwise provided herein, or by law, or in the Articles of
Incorporation (such Articles and any amendments thereof being hereinafter
collectively referred to as the "Articles of Incorporation"), a quorum
shall be present at all meetings of shareholders of the Corporation, if
the holders of a majority of the shares entitled to vote on that matter
are represented at the meeting in person or by proxy.
(b) The subsequent withdrawal of any shareholder from the meeting, after the
commencement of a meeting, or the refusal of any shareholder represented
in person or by proxy to vote, shall have no effect on the existence of a
quorum, after a quorum has been established at such meeting.
(c) Despite the absence of a quorum at any meeting of shareholders, the
shareholders present may adjourn the meeting.
Section 6 - Voting and Acting: (Section 78.320 & 78.350)
(a) Except as otherwise provided by law, the Articles of Incorporation, or
these Bylaws, any corporate action, the affirmative vote of the majority of
shares entitled to vote on that matter and represented either in person or
by proxy at a meeting of shareholders at which a quorum is present, shall
be the act of the shareholders of the Corporation.
(b) Except as otherwise provided by statute, the Certificate of Incorporation,
or these bylaws, at each meeting of shareholders, each shareholder of the
Corporation entitled to vote thereat, shall be entitled to one vote for
each share registered in his name on the books of the Corporation.
(c) Where appropriate communication facilities are reasonably available, any or
all shareholders shall have the right to participate in any shareholders'
meeting, by means of conference telephone or any means of communications by
which all persons participating in the meeting are able to hear each other.
Section 7 - Proxies: (Section 78.355)
Each shareholder entitled to vote or to express consent or dissent without a
meeting, may do so either in person or by proxy, so long as such proxy is
executed in writing by the shareholder himself, his authorized officer,
director, employee or agent or by causing the signature of the stockholder to be
affixed to the writing by any reasonable means, including, but not limited to, a
facsimile signature, or by his attorney-in-fact there unto duly authorized in
writing. Every proxy shall be revocable at will unless the proxy conspicuously
states that it is irrevocable and the proxy is coupled with an interest. A
telegram, telex, cablegram, or similar transmission by the shareholder, or a
photographic, photostatic, facsimile, shall be treated as a valid proxy, and
treated as a substitution of the original proxy, so long as such transmission is
a complete reproduction executed by the shareholder. If it is determined that
the telegram, cablegram or other electronic transmission is valid, the persons
appointed by the Corporation to count the votes of shareholders and determine
the validity of proxies and ballots or other persons making those determinations
must specify the information upon which they relied. No proxy shall be valid
after the expiration of six months from the date of its execution, unless
otherwise provided in the proxy. Such instrument shall be exhibited to the
Secretary at the meeting and shall be filed with the records of the Corporation.
If any shareholder designates two or more persons to act as proxies, a majority
of those persons present at the meeting, or, if one is present, then that one
has and may exercise all of the powers conferred by the shareholder upon all of
the persons so designated unless the shareholder provides otherwise.
Section 8 - Action Without a Meeting: (Section 78.320)
Unless otherwise provided for in the Articles of Incorporation of the
Corporation, any action to be taken at any annual or special shareholders'
meeting, may be taken without a meeting, without prior notice and without a vote
if written consents are signed by a majority of the shareholders of the
Corporation, except however if a different proportion of voting power is
required by law, the Articles of Incorporation or these Bylaws, than that
proportion of written consents is required. Such written consents must be filed
with the minutes of the proceedings of the shareholders of the Corporation.
3
<PAGE> 4
ARTICLE III - BOARD OF DIRECTORS
Section 1 - Number, Term, Election and Qualifications: (Section 78.115, 78.330)
(a) The first Board of Directors and all subsequent Boards of the Corporation
shall consist of ( ), unless and until otherwise determined by vote of a
majority of the entire Board of Directors. The Board of Directors or
shareholders all have the power, in the interim between annual and special
meetings of the shareholders, to increase or decrease the number of
Directors of the Corporation. A Director need not be a shareholder of the
Corporation unless the Certificate of Incorporation of the Corporation or
these Bylaws so require.
(b) Except as may otherwise be provided herein or in the Articles of
Incorporation, the members of the Board of Directors of the Corporation
shall be elected at the first annual shareholders' meeting and at each
annual meeting thereafter, unless their terms are staggered in the
Articles of Incorporation of the Corporation or these Bylaws, by a
plurality of the votes cast at a meeting of shareholders, by the holders
of shares entitled to vote in the election.
(c) The first Board of Directors shall hold office until the first annual
meeting of shareholders and until their successors have been duly elected
and qualified or until there is a decrease in the number of Directors.
Thereinafter, Directors will be elected at the annual meeting of
shareholders and shall hold office until the annual meeting of the
shareholders next succeeding his election, unless their terms are
staggered in the Articles of Incorporation of the Corporation (so long as
at least one-fourth in number of the Directors of the Corporation are
elected at each annual shareholders' meeting) or these Bylaws, or until
his prior death, resignation or removal. Any Director may resign at any
time upon written notice of such resignation to the Corporation.
(d) All Directors of the Corporation shall have equal voting power unless the
Articles of Incorporation of the Corporation provide that the voting power
of individual Directors or classes of Directors are greater than or less
than that of any other individual Directors or classes of Directors, and
the different voting powers may be stated in the Articles of Incorporation
or may be dependent upon any fact or event that may be ascertained outside
the Articles of Incorporation if the manner in which the fact or event may
operate on those voting powers is stated in the Articles of Incorporation.
If the Articles of Incorporation provide that any Directors have voting
power greater than or less than other Directors of the Corporation, every
reference in these Bylaws to a majority or other proportion of Directors
shall be deemed to refer to majority or other proportion of the voting
power of all the Directors or classes of Directors, as may be required by
the Articles of Incorporation.
Section 2 - Duties and Powers: (Section 78.120)
The Board of Directors shall be responsible for the control and management of
the business and affairs, property and interest of the Corporation, any may
exercise all powers of the Corporation, except such as those stated under Nevada
state law, are in the Articles of Incorporation or by these Bylaws, expressly
conferred upon or reserved to the shareholders or any other person or persons
named therein.
Section 3 - Regular Meetings; Notice: (Section 78.310)
(a) A regular meeting of the Board of Directors shall be held either within or
without the State of Nevada at such time and at such place as the Board
shall fix.
(b) No notice shall be required of any regular meeting of the Board of
Directors and, if given, need not specify the purpose of the meeting;
provided, however, that in case the Board of Directors shall fix or change
the time or place of any regular meeting when such time and place was fixed
before such change, notice of such action shall be given to each director
who shall not have been present at the meeting at which such action was
taken within the time limited, and in the manner set forth in these Bylaws
with respect to special meetings, unless such notice shall be waived in the
manner set forth in these Bylaws.
4
<PAGE> 5
Section 4 - Special Meetings; Notice: (Section 78.310)
(a) Special meetings of the Board of Directors shall be held at such time and
place as may be specified in the respective notices or waivers of notice
thereof.
(b) Except as otherwise required statute, written notice of special meetings
shall be mailed directly to each Director, addressed to him at his
residence or usual place of business, or delivered orally, with sufficient
time for the convenient assembly of Directors thereat, or shall be sent to
him at such place by telegram, radio or cable, or shall be delivered to
him personally or given to him orally, not later than the day on which the
meeting is to be held. If mailed, the notice of any special meeting shall
be deemed to be delivered on the second day after it is deposited in the
United States mails, so addressed, with postage prepaid. If notice is
given by telegram, it shall be deemed to be delivered when the telegram is
delivered to the telegraph company. A notice, or waiver of notice, except
as required by these Bylaws, need not specify the business to be
transacted at or the purpose or purposes of the meeting.
(c) Notice of any special meeting shall not be required to be given to any
Director who shall attend such meeting without protesting prior thereto or
at its commencement, the lack of notice to him, or who submits a signed
waiver of notice, whether before or after the meeting. Notice of any
adjourned meeting shall not be required to be given.
Section 5 - Chairperson:
The Chairperson of the Board, if any and if present, shall preside at all
meetings of the Board of Directors. If there shall be no Chairperson, or he or
she shall be absent, then the President shall preside, and in his absence, any
other director chosen by the Board of Directors shall preside.
Section 6 - Quorum and Adjournments: (Section 78.315)
(a) At all meetings of the Board of Directors, or any committee thereof, the
presence of a majority of the entire Board, or such committee thereof,
shall constitute a quorum for the transaction of business, except as
otherwise provided by law, by the Certificate of Incorporation, or these
Bylaws.
(b) A majority of the directors present at the time and place of any regular or
special meeting, although less than a quorum may adjourn the same from time
to time without notice, whether or not a quorum exists. Notice of such
adjourned meeting shall be given to Directors not present at time of the
adjournment and, unless the time and place of the adjourned meeting are
announced at the time of the adjournment, to the other Directors who were
present at the adjourned meeting.
Section 7 - Manner of Acting: (Section 78.315)
(a) At all meetings of the Board of Directors, each director present shall have
one vote, irrespective of the number of shares of stock, if any, which he
may hold.
(b) Except as otherwise provided by law, by the Articles of Incorporation, or
these bylaws, action approved by a majority of the votes of the Directors
present at any meeting of the Board or any committee thereof, at which a
quorum is present shall be the act of the Board of Directors or any
committee thereof.
(c) Any action authorized in writing made prior or subsequent to such action,
by all of the Directors entitled to vote thereon and filed with the minutes
of the Corporation shall be the act of the Board of Directors, or any
committee thereof, and have the same force and effect as if the same had
been passed by unanimous vote at a duly called meeting of the Board or
committee for all purposes
(d) Where appropriate communications facilities are reasonably available, any
or all directors shall have the right to participate in any Board of
Directors meeting, or a committee of the Board of Directors meeting, by
means of conference telephone or any means of communications by which all
persons participating in the meeting are able to hear each other.
5
<PAGE> 6
Section 8 - Vacancies: (Section 78.335)
(a) Unless otherwise provided for by the Articles of Incorporation of the
Corporation, any vacancy in the Board of Directors occurring by reason of
an increase in the number of directors, or by reason of the death,
resignation, disqualification, removal or inability to act of any
director, or other cause, shall be filled by an affirmative vote of a
majority of the remaining directors, though less than a quorum of the
Board or by a sole remaining Director, at any regular meeting or special
meeting of the Board of Directors called for that purpose except whenever
the shareholders of any class or classes or series thereof are entitled to
elect one or more Directors by the Certificate of Incorporation of the
Corporation, vacancies and newly created directorships of such class or
classes or series may be filled by a majority of the Directors elected by
such class or classes or series thereof then in office, or by a sole
remaining Director so elected.
(b) Unless otherwise provided for by law, the Articles of Incorporation or
these Bylaws, when one or more Directors shall resign from the board and
such resignation is effective at a future date, a majority of the
directors, then in office, including those who have so resigned, shall
have the power to fill such vacancy or vacancies, the vote otherwise to
take effect when such resignation or resignations shall become effective.
Section 9 - Resignation: (Section 78.335)
A Director may resign at any time by giving written notice of such resignation
to the Corporation.
Section 10 - Removal: (Section 78.335)
Unless otherwise provided for by the Articles of Incorporation, one or more or
all the Directors of the Corporation may be removed with or without cause at any
time by a vote of two-thirds of the shareholders entitled to vote thereon, at a
special meeting of the shareholders called for that purpose, unless the Articles
of Incorporation provide that Directors may only be removed for cause, provided
however, such Director shall not be removed if the Corporation states in its
Articles of Incorporation that its Directors shall be elected by cumulative
voting and there are a sufficient number of shares cast against his or her
removal, which if cumulatively voted at an election of Directors would be
sufficient to elect him or her. If a Director was elected by a voting group of
shareholders, only the shareholders of that voting group may participate in the
vote to remove that Director.
Section 11 - Compensation: (Section 78.140)
The Board of Directors may authorize and establish reasonable compensation of
the Directors for services to the Corporation as Directors, including, but not
limited to attendance at any annual or special meeting of the Board.
Section 12 - Committees: (Section 78.125)
Unless otherwise provided for by the Articles of Incorporation of the
Corporation, the Board of Directors, may from time to time designate from among
its members one or more committees, and alternate members thereof, as they deem
desirable, each consisting of one or more members, with such powers and
authority (to the extent permitted by law and these Bylaws) as may be provided
in such resolution. Unless the Articles of Incorporation or Bylaws state
otherwise, the Board of Directors may appoint natural persons who are not
Directors to serve on such committees authorized herein. Each such committee
shall serve at the pleasure of the Board and, unless otherwise stated by law,
the Certificate of Incorporation of the Corporation or these Bylaws, shall be
governed by the rules and regulations stated herein regarding the Board of
Directors.
ARTICLE IV - OFFICERS
Section 1 - Number, Qualifications, Election and Term of Office:
(Section 78.130)
(a) The Corporation's officers shall have such titles and duties as shall be
stated in these Bylaws or in a resolution of the Board of Directors which
is not inconsistent with these Bylaws. The officers of the Corporation
shall consist of a president, secretary and treasurer, and also may have
one or more vice presidents, assistant
6
<PAGE> 7
secretaries and assistant treasurers and such other officers as the Board
of Directors may from time to time deem advisable. Any officer may hold
two or more offices in the Corporation.
(b) The officers of the Corporation shall be elected by the Board of Directors
at the regular annual meeting of the Board following the annual meeting of
shareholders.
(c) Each officer shall hold office until the annual meeting of the Board of
Directors next succeeding his election, and until his successor shall have
been duly elected and qualified, subject to earlier termination by his or
her death, resignation or removal.
Section 2 - Resignation:
Any officer may resign at any time by giving written notice of such resignation
to the Corporation.
Section 3 - Removal:
Any officer elected by the Board of Directors may be removed, either with or
without cause, and a successor elected by the Board at any time, and any officer
or assistant officer, if appointed by another officer, may likewise be removed
by such officer.
Section 4 - Vacancies:
(a) A vacancy, however caused, occurring in the Board and any newly created
Directorships resulting from an increase in the authorized number of
Directors may be filled by the Board of Directors.
Section 5 - Bonds:
The Corporation may require any or all of its officers or Agents to post a bond,
or otherwise, to the corporation for the faithful performance of their positions
or duties.
Section 6 - Compensation:
The compensation of the officers of the Corporation shall be fixed from time to
time by the Board of Directors.
ARTICLE V
CONTRACTS, LOANS, CHECKS AND DEPOSITS
(a) Contracts. The Board of Directors or Executive Committee may
authorize any officer or officers, agent or agents, to enter into any contract
or execute and deliver any instrument in the name of and on behalf of the
corporation, and such authority may be general or confined to specific
instances. A proxy to vote any shares of another corporation, held by the
corporation, shall have the approval of the Board of Directors before said proxy
shall be issued.
(b) Loans. No loan or advances shall be contracted on behalf of the
corporation, no negotiable paper or other evidence of its obligation under any
loan or advance shall be issued in its name, and no property of the corporation
shall be mortgaged, pledged, hypothecated or transferred as security for the
payment of any loan, advance, indebtedness of liability of the corporation
unless and except as authorized by the Board, upon evidence of indebtedness of
the corporation shall be signed by an officer or officers or such agent or
agents of the corporation and in such manner as the Board of Directors or
Executive Committee from time to time may determine. Endorsements for deposit to
the credit of the corporation in any of its duly authorized depositories shall
be made in such manner as the Board of Directors from time to time may
determine.
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<PAGE> 8
ARTICLE VI - SHARES OF STOCK
Section 1 - Certificate of Stock: (Section 78.235)
(a) The shares of the Corporation shall be represented by certificates or
shall be uncertificated shares.
(b) Certificated shares of the Corporation shall be signed, (either manually
or by facsimile), by officers or agents designated by the Corporation for
such purposes, and shall certify the number of shares owned by him in the
Corporation. Whenever any certificate is countersigned or otherwise
authenticated by a transfer agent or transfer clerk, and by a registrar,
then a facsimile of the signatures of the officers or agents, the transfer
agent or transfer clerk or the registrar of the Corporation may be printed
or lithographed upon the certificate in lieu of the actual signatures. If
the Corporation uses facsimile signatures of its officers and agents on
its stock certificates, it cannot act as registrar of its own stock, but
its transfer agent and registrar may be identical if the institution
acting in those dual capacities countersigns or otherwise authenticates
any stock certificates in both capacities. If any officer who has signed
or whose facsimile signature has been placed upon such certificate, shall
have ceased to be such officer before such certificate is issued, it may
be issued by the Corporation with the same effect as if he were such
officer at the date of its issue.
(c) If the Corporation issues uncertificated shares as provided for in these
Bylaws, within a reasonable time after the issuance or transfer of such
uncertificated shares, and at least annually thereafter, the Corporation
shall send the shareholder a written statement certifying the number of
shares owned by such shareholder in the Corporation.
(d) Except as otherwise provided by law, the rights and obligations of the
holders of uncertificated shares and the rights and obligations of the
holders of certificates representing shares of the same class and series
shall be identical.
Section 2 - Lost or Destroyed Certificates: (Section 104.8405)
The Board of Directors may direct a new certificate or certificates to be issued
in place of any certificate or certificates theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed if the owner:
(a) so requests before the Corporation has notice that the shares have
been acquired by a bona fide purchaser,
(b) files with the Corporation a sufficient indemnity bond; and
(c) satisfies such other requirements, including evidence of such loss,
theft or destruction, as may be imposed by the Corporation.
Section 3 - Transfers of Shares: (Section 104.8401, 104.8406 & 104.8416)
(a) Transfers or registration of transfers of shares of the Corporation shall
be made on the stock transfer books of the Corporation by the registered
holder thereof, or by his attorney duly authorized by a written power of
attorney; an in the case of shares represented by certificates, only after
the surrender to the Corporation of the certificates representing such
shares with such shares properly endorsed, with such evidence of the
authenticity of such endorsement, transfer, authorization and other
matters as the Corporation may reasonably require, and the payment of all
stock transfer taxes due thereon.
(b) The Corporation shall be entitled to treat the holder of record of any
share or shares as the absolute owner thereof for all purposes and,
accordingly, shall not be bound to recognize any legal, equitable or other
claim to, or interest in, such share or shares on the part of any other
person, whether or not it shall have express or other notice thereof,
except as otherwise expressly provided by law.
Section 4 - Record Date: (Section 78.215 & 78.350)
(a) The Board of Directors may fix, in advance, which shall not be more than
sixty days before the meeting or action requiring a determination of
shareholders, as the record date for the determination of shareholders
8
<PAGE> 9
entitled to receive notice of, or to vote at, any meeting of shareholders,
or to consent to any proposal without a meeting, or for the purpose of
determining shareholders entitled to receive payment of any dividends, or
allotment of any rights, or for the purpose of any other action. If no
record date is fixed, the record date for shareholders entitled to notice
of meeting shall be at the close of business on the day preceding the day
on which notice is given, or, if no notice is given, the day on which the
meeting is held, or if notice is waived, at the close of business on the
day before the day on which the meeting is held.
(b) The Board of Directors may fix a record date, which shall not precede the
date upon which the resolution fixing the record date is adopted for
shareholders entitled to receive payment of any dividend or other
distribution or allotment of any rights of shareholders entitled to
exercise any rights in respect of any change, conversion or exchange of
stock, or for the purpose of any other lawful action.
(c) A determination of shareholders entitled to notice of or to vote at a
shareholders' meeting is effective for any adjournment of the meeting
unless the Board of Directors fixes a new record date for the adjourned
meeting.
Section 5 - Fractions of Shares/Scrip: (Section 78.205)
The Board of Directors may authorize the issuance of certificates or payment of
money for fractions of a share, either represented by a certificate or
uncertificated, which shall entitle the holder to exercise voting rights,
receive dividends and participate in any assets of the Corporation in the event
of liquidation, in proportion to the fractional holdings; or it may authorize
the payment in case of the fair value of fractions of a share as of the time
when those entitled to receive such fractions are determined; or it may
authorize the issuance, subject to such conditions as may be permitted by law,
of scrip in registered or bearer form over the manual or facsimile signature or
an officer or agent of the Corporation or its agent for that purpose,
exchangeable as therein provided for full shares, but such scrip shall not
entitle the holder to any rights of shareholder, except as therein provided. The
scrip may contain any provisions or conditions that the Corporation deems
advisable. If a scrip ceases to be exchangeable for full share certificates, the
shares that would otherwise have been issuable as provided on the scrip are
deemed to be treasury shares unless the scrip contains other provisions for
their disposition.
ARTICLE VII - DIVIDENDS (Section 78.215 & 78.288)
(a) Dividends may be declared and paid out of any funds available therefor, as
often, in such amounts, and at such time or times as the Board of
Directors may determine and shares may be issued pro rata and without
consideration to the Corporation's shareholders or to the shareholders of
one or more classes or series.
(b) Shares of one class or series may not be issued as a share dividend to
shareholders of another class or series unless:
(i) so authorized by the Articles of Incorporation;
(ii) a majority of the shareholders of the class or series to be issued
approve the issue; or
(iii) there are not outstanding shares of the class or series of shares
that are authorized to be issued.
ARTICLE VIII
INDEMNIFICATION
(a) Indemnification. No officer or Director shall be personally liable
for any obligations of the corporation or for any duties or
obligations arising out of any acts or conduct of said officer or
Director performed for or on behalf of the corporation. The
corporation shall and does hereby indemnify and hold harmless each
person and his heirs and administrators who shall serve at any time
hereafter as a Director of officer of the corporation from and
against any and all claims., judgments and liabilities to which such
persons shall become subject by reason of his having heretofore or
hereafter been a Director or officer of the corporation, or by
reason of any action alleged to have been heretofore or hereafter
taken or omitted to have been taken by him as such Director or
officer, and shall reimburse such person for all legal and other
expenses reasonably
9
<PAGE> 10
incurred by him in connection with any such claim or liability,
including power to defend such person from all suits or claims as
provided for under the provisions of the Nevada Uniform Commercial
Code and or Nevada Corporate Law; provided, however, that no such
person shall be indemnified against, or be reimbursed for, any
expense incurred in connection with any claim or liability arising
out of his own negligence or willful misconduct. The rights accruing
to any person under the foregoing provisions of this section shall
not exclude any other right to which he may lawfully be entitled,
nor shall anything herein contained restrict the right of the
corporation to indemnify or reimburse such person in any proper
case, even though not specifically herein provided for. The
corporation, its directors, officers, employees and agents shall be
fully protected in taking any action or making any payment, or in
refusing so to do in reliance upon the advice of counsel.
(b) Other Indemnification. The indemnification herein provided shall not
be deemed exclusive of any other rights to those seeking
indemnification may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors, or otherwise, both as to
action in his official capacity and as to action in another capacity
while holding such office, and shall continue as to a person who has
ceased to be a director, officer, agent or employee, and shall inure
to the benefit of the heirs, executors and administrators of such
person.
(c) Insurance. The corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer or employee
of the corporation, or is or was serving at the request of the
corporation as a Director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise
against liability asserted against him and incurred by him in any
such capacity, or arising out of his status as such, whether or not
the corporation would have the power to indemnify him against
liability under the provisions of this section.
(d) Settlement by the Corporation. The right of any person to be
indemnified shall be subject always to the right of the corporation
by its Board of Directors, in lieu of such indemnity, to settle any
such claim, action, suit or proceeding at the expense of the
corporation by the payment of the amount of such settlement and the
costs and expenses incurred in connection therewith.
ARTICLE IX - FISCAL YEAR
The fiscal year of the Corporation shall be fixed, and shall be subject to
change by the Board of Directors from time to time, subject to applicable law.
ARTICLE X- CORPORATE SEAL (Section 78.065)
The corporate seal, if any, shall be in such form as shall be prescribed and
altered, from time to time, by the Board of Directors. The use of a seal or
stamp by the corporation on corporate documents is not necessary and the lack
thereof shall not in any way affect the legality of a corporate document.
ARTICLE XI - AMENDMENTS
Section 1 - By Shareholders:
All Bylaws of the corporation shall be subject to alteration or repeal, and new
Bylaws may be made, by a majority vote of the shareholders at the time entitled
to vote in the election of Directors even though these Bylaws may also be
altered, amended or repealed by the Board of Directors.
Section 2 - By Directors: (Section 78.120)
The Board of Directors shall have power to make, adopt, alter, amend and repeal,
from time to time, Bylaws of the Corporation.
10
<PAGE> 11
ARTICLE XII - WAIVER OF NOTICE: (Section 78.375)
Whenever any notice is required to be given by law, the Articles of
Incorporation or these Bylaws, a written waiver signed by the person or persons
entitled to such notice, whether before or after the meeting by any person,
shall constitute a waiver of notice of such meeting.
ARTICLE XIII - INTERESTED DIRECTORS: (Section 78.140)
No contract or transaction shall be void or voidable if such contract or
transaction is between the corporation and one or more of its Directors or
Officers, or between the Corporation and any other corporation, partnership,
association, or other organization in which one or more of its Directors or
Officers, are directors or officers, or have a financial interest, when such
Director or Officer is present at or participates in the meeting of the Board,
or the committee of the shareholders which authorizes the contract or
transaction or his, her or their votes are counted for such purpose, if:
(a) the material facts as to his, her or their relationship or
interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee and are noted
in the minutes of such meeting, and the Board or committee in good
faith authorizes the contract or transaction by the affirmative
votes of a majority of the disinterested Directors, even though
the disinterested Directors be less than a quorum; or
(b) the material facts as to his, her or their relationship or
relationships or interest or interests and as to the contract or
transaction are disclosed or are known to the shareholders
entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the shareholders;
or
(c) the contract or transaction is fair as to the Corporation as of
the time it is authorized, approved or ratified, by the Board of
Directors, a committee of the shareholders; or
(d) the fact of the common directorship, office of financial interest
is not disclosed or known to the Director or Officer at the time
the transaction is brought before the Board of Directors of the
Corporation for such action.
Such interested Directors may be counted when determining the presence of a
quorum at the Board of Directors' or committee meeting authorizing the contract
or transaction.
ARTICLE XIV - ANNUAL LIST OF OFFICERS, DIRECTORS AND REGISTERED AGENT:
(Section 788.150 & 78.165)
The Corporation shall, within sixty days after the filing of its Articles of
Incorporation with the Secretary of State, and annually thereafter on or before
the last day of the month in which the anniversary date of incorporation occurs
each year, file with the Secretary of State a list of its president, secretary,
and treasurer and all of its Directors, along with the post office box or street
address, either residence or business, and a designation of its resident agent
in the state of Nevada. Such list shall be certified by an officer of the
Corporation.
These By-Laws are hereby adopted by this corporation effective this 1st day of
June, 1998.
(SEAL)
----------------------------------
Guy Pyron
President, CEO and Director
----------------------------------
Joe Bill Bennett
Vice President and Director
----------------------------------
Mark S. Zouvas
Secretary and CFO
----------------------------------
M. O. Rife, III
Chairman of the Board and Director
----------------------------------
Jack Gallacher
Director
----------------------------------
Thom Schliem
Director
<PAGE> 1
EX-3.9 MINUTES OF THE ANNUAL MEETING OF SHAREHOLDERS
MINUTES OF THE ANNUAL MEETING
OF SHAREHOLDERS OF
TITAN ENERGY CORP., INC. / POWER EXPLORATION, INC.
The shareholders of the above corporation, a Colorado corporation, held
a special meeting as follows:
TIME: 4:00 p.m.
DATE: July 24, 1998
PLACE: Green Oaks Park Hotel
6901 West Freeway
Fort Worth, Texas
There were present and participating at the meeting numerous
shareholders of the corporation representing a majority of the issued and
outstanding shares of the corporation.
GUY PYRON acted as Chairman of the meeting and Mark S. Zouvas as
Secretary of the meeting.
The business of the corporation was discussed at length.
The Chairman announced that the meeting was held pursuant to written
notice thereof by the corporation; such notice was presented to the meeting and
upon motion duly made and unanimously carried, was made a part of the records of
the meeting, and precedes the Minutes of this meeting in the Book of Minutes of
the corporation.
The Chairman announced that the first purpose of the meeting was to
ratify the acquisition of the assets of POWER EXPLORATION, INC., a Texas
corporation for stock in a tax-free transaction. After discussion on motion duly
made, seconded and unanimously carried, the following resolution was adopted.
RESOLVED that the corporation acquire the assets of POWER EXPLORATION,
INC., a Texas corporation in a tax-free transaction for Two Million Shares
(2,000,000) of the corporation stock.
The Chairman announced that the next purpose of the meeting was to
approve a change in the name of the corporation. On motion duly made, seconded
and unanimously carried, the following resolution was adopted.
RESOLVED that the name of TITAN ENERGY CORP., INC., be changed to POWER
EXPLORATION, INC.
The Chairman announced that the next purpose of the meeting was to
approve the increase in the amount of authorized shares. On motion duly made,
seconded and carried by a majority of the shareholders present in excess of
fifty percent (50%) of the issued and outstanding shares of the corporation, the
following resolution was adopted.
RESOLVED that the number of authorized shares of POWER EXPLORATION,
INC., be increased to fifty million (50,000,000) shares.
The Chairman announced that the next purpose of the meeting was to
approve a change of domicile for the corporation. On motion duly made, seconded
and unanimously carried, the following resolution was adopted.
RESOLVED that the corporation change its state of domicile from
Colorado to Nevada.
The Chairman announced that the next purpose of the meeting was to
approve the creation of a class of preferred stock for the corporation. On
motion duly made, seconded and carried by a majority of the shareholders
<PAGE> 2
present in excess of fifty percent (50%) of the issued and outstanding shares of
the corporation, the following resolution was adopted.
RESOLVED that POWER EXPLORATION, INC., create a class of preferred
stock with an attached warrant for use in the acquisition of oil properties.
A report was presented to the shareholders by the Chief Financial
Officer, Mark S. Zouvas, regarding the financial condition of the corporation.
The Chairman then began a question and answer period which included the
officers, directors, and consultants of the corporation.
There being no further business to come before the meeting, on motion
duly made and unanimously carried, the meeting was adjourned at 6:15 p.m.
- --------------------------------- ---------------------------------
Mark S. Zouvas Guy Pyron
Secretary Chairman
2
<PAGE> 1
EXHIBIT 3.10
MINUTES OF A SPECIAL MEETING
OF THE
BOARD OF DIRECTORS
OF
POWER EXPLORATION, INC.
A special meeting of the Board Of Directors of the above-named
Corporation was held 5020 Collinwood, Suite 201, Ft. Worth, Texas, on the 24th
day of July, 1998, at 6:00 p.m.
The following directors, being all of the directors of the Corporation
who were appointed as of July 24 and constituting a quorum and present were M.O.
Rife, III, Joe Bill Bennett, and Thomas Schliem, and Guy Pyron. Jack D.
Gallacher was not present at the meeting.
On motion duly made, seconded and unanimously adopted, M.O. Rife, II
was chosen as Chairman of the meeting and Mark Zouvas was chosen as Secretary of
the meeting.
The Secretary noted that a Waiver of Notice of the meeting, is not
necessary by virtue of the Directors signing these minutes.
1. DIRECTORS.
The Chairman noted that M.O. Rife, III, Joe Bill Bennett, and Thomas
Schliem, Guy Pyron and Jack D. Gallacher having been appointed directors at the
shareholders meeting held on July 24, 1998. The directors having indicated their
willingness to act, would hold office until the next annual meeting of the
shareholders, and until their successors shall have been elected and qualified,
unless a special meeting of shareholders was sooner held for the purpose of
electing directors. By signing these minutes the directors have accepted their
appointment.
2. ELECTION OF OFFICERS.
The following persons were nominated as officers of the Corporation.
Title Name
----- ----
POWER EXPLORATION, INC. - Directors Minutes
July 24, 1998
Page 1 of 3
<PAGE> 2
Title Name
Chief Executive Officer & President Guy Pyron
Chief Operating Officer & Vice President Joe Bill Bennett
Treasurer Pattye Hill
Secretary and Chief Financial Officer Mark S. Zouvas
3. CREATION OF THE EXECUTIVE COMMITTEE
The following persons were nominated to the Executive Committee of the
Corporation.
Title Name
----- ----
Chief Executive Officer Guy Pyron
Chief Operating Officer Joe Bill Bennett
Chief Financial Officer Mark S. Zouvas
The aforementioned executive committee is hereby empowered to conduct
all aspects of the Company's business by majority, pursuant to section 12 of the
Bylaws of Power Exploration, Inc. The members of this committee serve at the
pleasure of the Board and, unless otherwise stated by law, the Certificates of
Incorporation of the Corporation or the bylaws, shall be governed by the rules
and regulations stated.
The executive committee is hereby empowered to enter into contractual
arrangements, debt covenants and to authorize the issuance of shares of common
and preferred stock, warrants for the purchase of common and preferred stock and
options to purchase common and preferred stock, by majority. The executive
committee is charged with the safeguarding of the Company's assets and will
maintain its fiduciary responsibility to its shareholders at all times.
No further nominations being made, the Chairman declared the
nominations were closed and the directors present proceeded to vote on the
nominees. All of the directors present having voted and the votes counted, the
Chairman announced that the aforesaid nominees had been duly elected
POWER EXPLORATION, INC. - Directors Minutes
July 24, 1998
Page 2 of 3
<PAGE> 3
to the offices set before their respective names by the affirmative vote of all
the directors present to serve the ensuing year and until their respective
successors are elected and shall qualify.
There being no other further business to come before the meeting, upon
motion duly made, the meeting adjourned.
ADOPTED EFFECTIVE THIS 24TH DAY OF JULY, 1998.
/s/ MARK S. ZOUVAS
-------------------------
Mark S. Zouvas, Secretary
The foregoing minutes have been read and are approved by the
undersigned, being all the directors of the above named Corporation.
/s/ M.O. RIFE
- --------------------------
M.O. Rife, Director
/s/ JOE BILL BENNETT
- --------------------------
Joe Bill Bennett, Director
- --------------------------
Guy Pyron, Director
- --------------------------
Thomas Schliem, Director
- --------------------------
Jack D. Gallacher, Director
POWER EXPLORATION, INC. - Directors Minutes
July 24, 1998
Page 3 of 3
<PAGE> 1
EX-10.9 AGREEMENT WITH M.O. RIFE IV FOR A $50,000 LOAN DATED April 7, 1998,
WITH EXTENSION AGREEMENT
PROMISSORY NOTE
April 7, 1998
Fort Worth, Texas
$50,000.00
For value received, on demand or six (6) months after date hereof, I
promise to pay to M.O. Rife, IV, Fifty Thousand Dollars ($50,000.00) with
interest at the rate of twelve percent (12%) per annum.
Place of Payment
All payments shall be made at the office of Titan Energy Corp., Inc.
5020 Collinwood, Ste. 201, Fort Worth, Texas 76107
Payment
The principal and interest of this Note shall be payable on demand or
in one (1) payment on or before October 6, 1998.
Prepayment
This Note may be prepaid in part or in full at anytime without penalty.
MAKER:
TITAN ENERGY CORP., INC.
By:
------------------------------
M. O. Rife, III, President
------------------------------
M. O. Rife, III, Individually
------------------------------
Joe Bill Bennett, Individually
------------------------------
Thom Schliem, Individually
EXTENSION OF PROMISSORY NOTE
Extension of Promissory Note made by and between M.O. Rife IV and Titan
Energy Corp./ Power Exploration, Inc., said Note being dated April 7, 1998.
<PAGE> 2
Whereas said Promissory Note expires on October 6, 1998, and the
parties desire to extend and continue said note; it is provided that said
Promissory Note shall be extended for an additional term commencing upon the
expiration of the original term with the new term expiring on January 31, 1999.
This extension shall be on the same terms and conditions as contained
in the original note and as if set forth and incorporated herein.
This Extension of Promissory Note shall be binding upon and inure to
the benefit of the parties, their successors and assigns.
Signed this _____ day of ____________________, 1998.
In the presence of:
- ---------------------------------- -------------------------------
Witness M.O. Rife IV
- ---------------------------------- -------------------------------
Witness for Power Exploration, Inc.
2
<PAGE> 1
EXHIBIT 10.10
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
POWER EXPLORATION INC BANK OF COMMERCE ACCOUNT #: 4174
5020 COLLINWOOD #201 P.O. BOX 17089/301 W. 7TH ST. Loan Number 6176200
FT WORTH, TX 76107-3664 FORT WORTH, TX 76102 Date JULY 29, 1998
Maturity Date AUGUST 27, 1998
Loan Amount $100,000.00
Renewal Of ____________
BORROWER'S NAME AND ADDRESS LENDER'S NAME AND ADDRESS OFFICER: GG/GH
"I" includes each borrower above, joint and severally. "You" means the lender, its successors and assigns.
- ------------------------------------------------------------------------------------------------------------------------------------
For value received, I promise to pay to you, or your order, at your address listed above the PRINCIPAL sum of ONE HUNDRED THOUSAND
AND NO/100* * * * * * * * * * *Dollars $100,000.00
[ ] Single Advance: I will receive all of this principal sum on _______________. No additional advances are contemplated under this
note.
[X] Multiple Advance: The principal sum shown above is the maximum amount of principal I can borrow under this note. On JULY 29,
1998 I will receive the amount of $________________ and future principal advances are contemplated.
Conditions: The conditions for future advances are AS REQUESTED
[ ] Open End Credit: You and I agree that I may borrow up to the maximum amount of principal more than one time. This feature
is subject to all other conditions and expires on ___________________________.
[X] Closed End Credit: You and I agree that I may borrow up to the maximum only one time (and subject to all other conditions).
INTEREST: I agree to pay interest on the outstanding principal balance from JULY 29, 1998 at the rate of 9.500% per year until
AUGUST 27, 1998.
[ ] Variable Rate: This rate may then change as stated below.
[ ] Index Rate: The future rate will be _________________ the following index rate: ____________________________________________
________________________________________________________________________________________________________________________________
________________________________________________________________________________________________________________________________
[ ] Ceiling Rate: The interest rate ceiling for this note is the _________________ ceiling rate announced by the Credit
Commissioner from time to time.
[ ] Frequency and Timing: The rate on this note may change as often as ________________________________________________________.
A change in the interest rate will take effect ____________________________________________________________________________.
[ ] Limitations: During the term of this loan, the applicable annual interest rate will not be more than _______________% or
less than ________________%. The rate may not change more than _______________% each _______________________________.
Effect of Variable Rate: A change in the interest rate will have the following effect on the payments:
[ ] The amount of each scheduled payment will change. [ ] The amount of the final payment will change.
[ ] ___________________________________________________________________________________________________________________________.
ACCRUAL METHOD: Interest will be calculated on a ACTUAL/360 basis.
POST MATURITY RATE: I agree to pay interest on the unpaid balance of this note owing after maturity, and until paid in full, as
stated below:
[ ] on the same fixed or variable rate basis in effect before maturity (as indicated above).
[X] at a rate equal to THE HIGHEST RATE PERMITTED BY LAW.
[ ] LATE CHARGE: If a payment is made more than _________ days after it is due, I agree to pay a late charge of ____________________
_______________________________________________________________________________________________________________________________.
[ ] ADDITIONAL CHARGES: In addition to interest, I agree to pay the following charges which [ ] are [ ] are not included in the
principal amount above: _______________________________________________________________________________________________________.
PAYMENTS: I agree to pay this note as follows:
[X] Interest: I agree to pay accrued interest ON DEMAND, BUT IF NO DEMAND IS MADE AT MATURITY
[X] Principal: I agree to pay the principal ON DEMAND, BUT IF NO DEMAND IS MADE THEN ON AUGUST 27, 1998
[ ] Installments: I agree to pay this note in ________ payments. The first payment will be in the amount of $_______________________
and will be due ___________________________________________. A payment of $___________________ will be due _____________________
__________________________________________________________________ thereafter. The final payment of the entire unpaid balance
of principal and interest will be due ____________________________________________________________________.
ADDITIONAL TERMS:
------------------------------------------------------------------------
[X] SECURITY: This note is separately secured by (describe separate
document by type and date): LETTERS OF GUARANTY FROM M O RIFE III TRUST
A AND M O RIFE III DATED 7/29/98
(This section is for your internal use. Failure to list a separate
security document does not mean the agreement will not secure this
note.)
- ------------------------------------------------------- ------------------------------------------------------------------------
THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE PURPOSE: The purpose of this loan is BUSINESS: WORKING CAPITAL.
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. SIGNATURES: I AGREE TO THE TERMS OF THIS NOTE (INCLUDING THOSE ON PAGE
2). I have received a copy on today's date.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
- -------------------------------------------------------
Signature for Lender POWER EXPLORATION INC
------------------------------------------------------------------------
X /s/ GENE GRAY BY: /s/ PATTYE HILL
- ------------------------------------------------------- ------------------------------------------------------------------------
GENE GRAY PATTYE HILL, SECRETARY
BY: /s/ JOE BILL BENNETT
- ------------------------------------------------------- ------------------------------------------------------------------------
JOE BILL BENNETT, VICE PRESIDENT
------------------------------------------------------------------------
</TABLE>
(page 1 of 2)
<PAGE> 2
[ ] means the terms that apply to this loan. "I," "me" or "my" means each
Borrower who signs this note and each other person or legal entity (including
guarantors, endorsers, and sureties who agrees to pay this note (together
referred to as "us"). "You" or "your" means the Lender and its successors and
assigns.
APPLICABLE LAW: The law of the state of Texas will govern this note. Any term of
this note which is contrary to applicable law will not be effective unless the
law permits you and me to agree to such a variation. If any provision of this
agreement cannot be enforced according to its terms, [ ] fact will not affect
the enforceability of the remainder of this agreement. No modification of this
agreement may be made without your express written consent. Time is of the
essence in this agreement.
PAYMENTS: Each payment I make on this note will first reduce the amount
[ ] owe you for charges which are neither interest nor principal. The
remainder of each payment will then reduce accrued unpaid interest, and then
unpaid principal. If you and I agree to a different application of payment, we
will describe our agreement on this note. I may prepay a part of, or the entire
balance of this law without penalty, unless we specify to the contrary on this
note. Any partial prepayment will not excuse or reduce any later scheduled
payment until this note is paid in full (unless, when I make the prepayment, you
and I agree in writing to the contrary).
INTEREST: Interest accrues on the principal remaining unpaid from time to time,
until paid in full. If a I receive the principal in more than one advance, each
advance will start to earn interest only when I receive the advance. The
interest rate in effect on this note at any given time will apply to the entire
principal advanced at that time. Notwithstanding anything to the contrary, I do
not agree to pay and you do not intend to charge any rate of interest that is
higher than the maximum rate of interest you could charge under applicable law
for the extension of credit that is agreed to here (either before or after
maturity). If any notice of interest accrual is sent and is in error, we
mutually agree to correct it, and if you actually collect more interest than
allowed by law and this agreement, you agree to refund it to me.
INDEX RATE: The index will serve only as a device for setting the rate on this
note. You do not guarantee by selecting this index, or the margin, that the rate
on this note will be the same rate you charge on any other loans or class of
loans to me or other borrowers.
ACCRUAL METHOD: The amount of interest that I will pay on this loan will be
calculated using the interest rate and accrual method stated on page 1 of this
note. For the purpose of interest calculation, the accrual method will
determine the number of days in a "year." If no accrual method is stated, then
you may use any reasonable accrual method for calculating interest.
POST MATURITY RATE: For purposes of deciding when the "Post Maturity Rate"
(shown on page 1) applies, the term "maturity" means the date of the last
scheduled payment indicated on page 1 of this note or the date you accelerate
payment on the note, whichever is earlier.
SINGLE ADVANCE LOANS: If this is a single advance loan, you and I expect that
you will make only one advance of principal. However, you may add other amounts
to the principal if you make any payments described in the "PAYMENTS BY LENDER"
paragraph below.
MULTIPLE ADVANCE LOANS: If this is a multiple advance loan, you and I expect
that you will make more than one advance of principal. If this is closed end
credit, repaying a part of the principal will not entitle me to additional
credit.
PAYMENTS BY LENDER: If you are authorized to pay, on my behalf, charges I am
obligated to pay (such as property insurance premiums), then you may treat those
payments made by you as advances and add them to the unpaid principal under this
note, or you may demand immediate payment of the charges.
SET-OFF: I agree that you may set off any amount due and payable under this
note against any right I have to receive money from you.
"Right to receive money from you" means:
(1) any deposit account balance I have with you;
(2) any money owed to me on an item presented to you or in your possession
for collection or exchange; and
(3) any purchase agreement or other nondeposit obligation.
"Any amount due and payable under this note" means the total amount of
which you are entitled to demand payment under the terms of this note at the
time you set off. This total includes any balance the due date for which you
properly accelerate under this note.
If my right to receive money from you is also owned by someone who has not
agreed to pay this note, your right of set-off will apply to my interest in the
obligation and to any other amounts I could withdraw on my sole request or
endorsement. Your right of set-off does not apply to an account or other
obligation where my rights are only as a representative. It also does not apply
to any Individual Retirement Account or other tax-deferred retirement account.
You will not be liable for the dishonor of any check when the dishonor
occurs because you set off this debt against any of my accounts. I agree to
hold you harmless from any such claims arising as a result of your exercise of
your right of set-off.
REAL ESTATE OR RESIDENCE SECURITY: If this note is secured by real estate or a
residence that is personal property, the existence of a default and your
remedies for such a default will be determined by applicable law, by the terms
of any separate instrument creating the security interest and, to the extent
not prohibited by law and not contrary to the terms of the separate security
instrument, by the "Default" and "Remedies" paragraphs herein.
DEFAULT: I will be in default on this loan and any agreement securing this loan
if any one or more of the following occurs:
(1) I fail to perform any obligation which I have undertaken in this note
or any agreement securing this note; or
(2) you, in good faith, believe that the prospect of payment or the
prospect of my performance of any other of my obligations under this
note or any agreement securing this note is impaired.
If any of us are in default on this note or any security agreement, you
may exercise your remedies against any or all of us.
REMEDIES: If I am in default on this note you have, but are not limited to,
the following remedies:
(1) You may demand immediate payment of my debt under this note
(principal, accrued unpaid interest and other accrued charges).
(2) You may set off this debt against any right I have to the payment of
money from you, subject to the terms of the "Set-Off" paragraph herein.
(3) You may demand security, additional security, or additional parties to
be obligated to pay this note as a condition for not using any other
remedy.
(4) You may refuse to make advances to me or allow purchases on credit by
me.
(5) You may use any remedy you have under state or federal law.
By selecting any one or more of these remedies you do not give up your
right to later use any other remedy. By waiving your right to declare an event
to be a default, you do not waive your right to later consider the event as a
default if it continues or happens again.
COLLECTION COSTS AND ATTORNEY'S FEES: I agree to pay all costs of collection,
replevin or any other or similar type of cost if I am in default. In addition,
if you hire an attorney to collect this note, I also agree to pay any fee you
incur with such attorney plus court costs (except where prohibited by law). To
the extent permitted by the United States Bankruptcy Code, I also agree to pay
the reasonable attorney's fees and costs you incur to collect this debt as
awarded by any court exercising jurisdiction under the Bankruptcy Code.
WAIVER: I give up my rights to require you to do certain things. I will not
require you to:
(1) demand payment of amounts due (presentment);
(2) obtain official certification of nonpayment (protest);
(3) give notice that amounts due have not been paid (notice of dishonor);
(4) give notice of intent to accelerate; or
(5) give notice of acceleration.
I waive any defenses I have based on suretyship or impairment of
collateral.
OBLIGATIONS INDEPENDENT: I understand that I must pay this note even if someone
else has also agreed to pay it (by, for example, signing this form or a separate
guarantee or endorsement). You may sue me alone, or anyone else who is obligated
on this note, or any number of us together, to collect this note. You may do so
without any notice that it has not been paid (notice of dishonor). You may
without notice release any party to this agreement without releasing any other
party. If you give up any of your rights, with or without notice, it will not
affect my duty to pay this note. Any extension of new credit to any of us, or
renewal of this note by all or less than all of us will not release me from my
duty to pay it. (Of course, you are entitled to only one payment in full.) I
agree that you may at your option extend this note or the debt represented by
this note, or any portion of the note or debt, from time to time without limit
or notice and for any term without affecting my liability for payment of the
note. I will not assign my obligation under this agreement without your prior
written approval.
CREDIT INFORMATION: I agree and authorize you to obtain credit information
about me from time to time (for example, by requesting a credit report) and to
report to others your credit experience with me (such as a credit reporting
agency). I agree to provide you, upon request, any financial statement or
information you may deem necessary. I warrant that the financial statements and
information I provide to you are or will be accurate, correct and complete.
NOTICE: Unless otherwise required by law, any notice to me shall be given by
delivering it or by mailing it by first class mail addressed to me at my last
known address. My current address is on page 1. I agree to inform you in writing
of any change in my address. I will give any notice to you by mailing it first
class to your address stated on page 1 of this agreement, or to any other
address that you have designated.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
DATE OF PRINCIPAL BORROWER'S PRINCIPAL PRINCIPAL INTEREST INTEREST INTEREST
TRANSACTION ADVANCE INITIALS PAYMENTS BALANCE RATE PAYMENTS PAID
(not required) THROUGH:
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
/ / $ $ $ % $ / /
- --------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- --------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- --------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- --------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- --------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- --------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- --------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- --------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
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/ / $ $ $ % $ / /
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/ / $ $ $ % $ / /
- --------------------------------------------------------------------------------------------------------
</TABLE>
(page 2 of 2)
<PAGE> 1
EXHIBIT 10.11
LOAN AGREEMENT
This Loan Agreement is entered into effective the 13th day of August, 1998,
by and between the Zouvas Family Trust, (a California Living Trust)("Lender")
and Power Exploration, Inc. ("Borrower").
WITNESSETH
Whereas, "BORROWER" is a publicly traded company listed on the NASDAQ
over-the-counter bulletin board exchange.
Whereas, as part of the inducement to Lender to enter into an Agreement to
lend One Hundred Thousand Dollars ($100,000), Borrower has agreed to the
following
NOW, THEREFORE, in consideration of the agreements and promises herein recited
and contained, the sufficiency of which is hereby acknowledged, the parties
hereto hereby agree as follows:
1. PLEDGE OF COLLATERAL
No collateral is pledged. Payment in full of the obligations by Borrower to
Lender shall consist of amount of One Hundred Thousand Dollars ($100,000)
plus One Hundred Thousand (100,000) warrants at an exercise price of $1.00.
2. WARRANTIES
Borrower warrants to LENDER that it can legally transfer warrants described
above in a true and lawful manner.
3. TERMS AND CONDITIONS
BORROWER agrees to grant to LENDER One Hundred Thousand (100,000) warrants
for the purchase of common stock of the Borrower at an exercise price of
$1.00 per share, calculated on a cashless basis, plus repayment of the
principal amount loaned, within thirty days of this agreement.
4. REMEDIES FOR DEFAULT
A. The following constitutes a default hereunder:
(i) Failure by BORROWER to pay LENDER, on or before
September 15, 1999 the sum of One Thousand Dollars ($100,000)
plus One
<PAGE> 2
Hundred Thousand (80,000) warrants at an exercise price of
$1.00.; or
(ii) The breach of any of the warranties, representations,
covenants, or agreements applicable to the acquisition of the
securities, the subject matter of this Loan Agreement, and the
failure to cure the same after receipt of written notice as is
set forth therein.
B. Upon the occurrence of a default, LENDER;
(i) At any time thereafter, so long as such default is continuing
and, at its option, exercise it rights under this Loan
Agreement;
(ii) Vote all or any part of the COLLATERAL (whether or not
transferred into its name or the name of the nominee or nominees
as provided below) and give all consents, waivers and
ratifications in respect thereof and otherwise act with respect
thereto as though it were the outright owner thereof;
(iii) Exercise from time to time any right and remedies available
under the Uniform Commercial Code as in effect at that time; and
(iv) Subject to any requirements of applicable law, and without
limiting any rights otherwise available hereunder or under law,
transfer into its name, or into the name of any nominee or
nominees LENDER may appoint, all or part of the COLLATERAL and
retain the same in full satisfaction from any further; or sell,
assign and deliver the COLLATERAL at public or private sale for
cash, on credit or for other property, for immediate or future
delivery, without any assumption of credit risk, and for such
price or prices and on such terms as in LENDER'S uncontrolled
discretion may determine.
If any notification of intended disposition of any of the
COLLATERAL is required by law, such notification shall be deemed
reasonable and properly given if in writing and mailed at least
thirty (30) days before such disposition by prepaid registered
or certified mail, addressed to the address specified below.
C. If sold at public sale, any proceeds of any disposition of the
COLLATERAL may be applied to the payment of expenses in connection with
the COLLATERAL, including reasonable attorney's fees and legal expenses,
and any balance of such proceeds after One Hundred Thousand Dollars
($100,000) and expenses shall be returned. No delay or failure on the
part of LENDER the exercise of any right or remedy hereunder shall
<PAGE> 3
operate as a waiver thereof, and no remedy hereunder shall preclude any
further exercise thereof or the exercise of any other right or remedy
hereunder.
6. TERMINATION
Upon the payment to LENDER from any source the sum of One Hundred Thousand
Dollars ($100,000) plus One Hundred Thousand (100,000) warrants at an
exercise price of $1.00., this Loan Agreement shall terminate and LENDER
shall cancel all related agreements and/or deliver the COLLATERAL to
BORROWER or the designees of BORROWER.
7. SUCCESSORS AND ASSIGNS
LENDER and BORROWER agree that this Loan Agreement shall be binding upon,
inure to benefit of and be enforceable by the parties hereto and their
respective heirs, personal representatives, successors and assigns.
8. ATTORNEYS FEES
If action be instituted regarding this Pledge Agreement the prevailing
party shall be entitled to reasonable attorney's fees and costs.
9. PRIOR AGREEMENTS
The Pledge Agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof.
10. NOTICES
All notices, offers, acceptances and other communications hereunder shall
be made in writing signed by the party making the same, and shall be deemed
delivered on the date mailed if sent by certified or registered United
States mail, postage prepaid, to the addresses set forth below:
Zouvas Family Trust
C/O Peter S. Zouvas
3737 Garden Lane
San Diego, CA 92106
<PAGE> 4
Mark Zouvas
C/O Power Exploration, Inc.
5020 Collinwood Avenue, Suite 201
Fort Worth, Texas 76107
Or such other address as either party may specify by written notice to the
other party.
11. APPLICABLE LAW
This Pledge Agreement shall be construed in accordance with and governed by
the laws of the State of Nevada.
12. COUNTERPART
This Pledge Agreement may be executed in counterpart and each copy so
executed shall be considered an original.
IN WITNESS WHEREOF, the following have executed and delivered and have
accepted this Pledge Agreement on the date given above.
LENDER: BORROWER:
ZOUVAS FAMILY TRUST POWER EXPLORATION, INC.
By: /s/ PETER S. ZOUVAS By: /s/ MARK ZOUVAS
------------------- ----------------
Peter S. Zouvas Mark Zouvas, CFO
<PAGE> 1
EXHIBIT 10.12
LOAN AGREEMENT
This Loan Agreement is entered into effective the 15th day of September,
1998, by and between Business Exchange Investments, Inc (a Nevada Corporation)
("Lender") and Power Exploration, Inc. ("borrower").
WITNESSETH
Whereas, "BORROWER" is the owner of 100% of Oil Seeps, Inc a Texas
corporation (hereinafter referred to as "OSI"): and
Whereas, as part of the inducement to Lender to enter into an Agreement
to lend Two Hundred and Fifty Thousand Dollars ($250,000), Borrower has agreed
to pledge 100% of the shares of OSI. Evidenced by the attached special minutes
of the Board of Directors of Power Exploration, Inc. (said shares being
referred to herein as the "COLLATERAL") as security for its obligations;
NOW, THEREFORE, in consideration of the agreements and promises herein recited
and contained, the sufficiency of which is hereby acknowledged, the parties
hereto hereby agree as follows:
1. PLEDGE OF COLLATERAL
Borrower has agreed to and does hereby pledge for the benefit of Lender the
COLLATERAL, said COLLATERAL being validly issued together with a duly
executed stock transfer powers or powers in blank. The COLLATERAL is
pledged as security for the payment in full of the obligations by Borrower
to Lender in the amount of Two Hundred and Fifty Thousand Dollars
($250,000) plus interest at the rate of Ten percent per annum. Lender
shall have a lien upon security title to and a security interest in all of
the COLLATERAL delivered pursuant hereto.
2. VOTING AND DIVIDENDS
So long as no default has occurred hereunder, Lender shall be entitled to
vote any and all COLLATERAL, receive all dividends, and give all consents,
waivers and ratifications in respect thereof. All such rights to vote,
receive dividends, and give consents, waivers and ratifications shall cease
upon the occurrence of a default as defined in Paragraph 5 hereof.
<PAGE> 2
3. WARRANTIES
BORROWER hereby warrants to LENDER that he is the sole and lawful owner of
the COLLATERAL; that the COLLATERAL is free and clear of all encumbrances
and liens and that BORROWER have full right to pledge, assign, convey and
transfer the COLLATERAL as provided herein.
4. TERMS AND CONDITIONS
LENDER by their execution of the loan Agreement, accept the pledge of the
COLLATERAL hereunder and agree to hold the COLLATERAL in accordance with
the provisions hereof and applicable law.
5. REMEDIES FOR DEFAULT
A. The following constitutes a default hereunder:
(i) Failure by BORROWER to pay LENDER, on or before January 15, 1999
the sum of Two Hundred and Fifty Thousand Dollars ($250,000)
together with interest at the rate of Ten Percent (10%) per
annum; or
(ii) The breach of any of the warranties, representations,
covenants, or agreements applicable to the acquisition of the
securities, the subject matter of this Loan Agreement, and the
failure to cure the same after receipt of written notice as is
set forth therein.
B. Upon the occurrence of a default, LENDER;
(i) At any time thereafter, so long as such default is continuing
and, at its option, exercise its rights under this Loan
Agreement;
(ii) Vote all or any part of the COLLATERAL (whether or not
transferred into its name or the name of the nominee or
nominees as provided below) and give all consents, waivers and
ratifications in respect thereof and otherwise act with respect
thereto as though it were the outright owner thereof;
(iii) Exercise from time to time any right and remedies available
under the Uniform Commercial Code as in effect at that time; and
(iv) Subject to any requirements of applicable law, and without
limiting any rights otherwise available hereunder or under law,
transfer into its name, or into the name of any nominee or
nominees LENDER may appoint, all or part of the COLLATERAL and
retain the same in full satisfaction from any further; or sell,
assign and deliver the
<PAGE> 3
COLLATERAL at public or private sale for cash, on credit or for
other property, for immediate or future delivery, without any
assumption of credit risk, and for such price or prices and on
such terms as in LENDER'S uncontrolled discretion may determine.
If any notification of intended disposition of any of the
COLLATERAL is required by law, such notification shall be deemed
reasonable and properly given if in writing and mailed at least
thirty (30) days before such disposition by prepaid registered
or certified mail, addressed to the address specified below.
C. If sold at public sale, any proceeds of any disposition of the
COLLATERAL may be applied to the payment of expenses in connection with
the COLLATERAL, including reasonable attorney's fees and legal
expenses, and any balance of such proceeds after payment Two Hundred
and Fifty Thousand Dollars ($250,000) and expenses shall be returned.
No delay or failure on the part of LENDER the exercise of any right or
remedy hereunder shall operate as a waiver thereof, and no remedy
hereunder shall preclude any further exercise thereof or the exercise
of any other right or remedy hereunder.
6. TERMINATION
Upon the payment to LENDER from any source the sum of Two Hundred and Fifty
Thousand Dollars ($250,000) plus interest, this Loan Agreement shall
terminate and LENDER shall cancel all related agreements and/or deliver the
COLLATERAL to BORROWER or the designees of BORROWER.
7. SUCCESSORS AND ASSIGNS
LENDER and BORROWER agree that this Loan Agreement shall be binding upon,
inure to benefit of and be enforceable by the parties hereto and their
respective heirs, personal representatives, successors and assigns.
8. ATTORNEYS FEES
If action be instituted regarding this Pledge Agreement the prevailing party
shall be entitled to reasonable attorney's fees and costs.
9. PRIOR AGREEMENTS
This Pledge Agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof.
<PAGE> 4
10. NOTICES
All notices, offers, acceptances and other communications hereunder shall
be made in writing signed by the party making the same, and shall be deemed
delivered on the date mailed if sent by certified or registered United
States mail, postage prepaid, to the addresses set forth below:
Business Exchange Investments, Inc
C/O Sol Yarmak
4616 W. Sahara Blvd., Ste. 317
Las Vegas, Nevada 89102
Mark Zouvas
C/O Power Exploration, Inc.
5020 Collinwood Avenue, Suite 201
Fort Worth, Texas 76107
Or such other address as either party may specify by written notice to the
other party
11. APPLICABLE LAW
This Pledge Agreement shall be construed in accordance with and governed by
the laws of the State of Nevada.
12. COUNTERPART
This Pledge Agreement may be executed in counterpart and each copy so
executed shall be considered an original.
IN WITNESS WHEREOF, the following have executed and delivered and have
accepted this Pledge Agreement on the date given above.
LENDER: BORROWER:
BUSINESS EXCHANGE POWER EXPLORATION, INC
INVESTMENTS, INC
By: /s/ SAUL YARMAK By: /s/ M.O. RIFE, III
---------------- ------------------------
Saul Yarmak M.O. Rife, III, Chairman
<PAGE> 1
EXHIBIT 10.13
LOAN AGREEMENT
This Loan Agreement is entered into effective the 15th day of September,
1998, by and between Dallas Cady Family, LLP. (a Texas Limited Liability
Corporation) ("Lender") and Power Exploration, Inc. ("Borrower").
WITNESSETH
Whereas, "BORROWER" is the owner of two truck units, serial numbers PB5142
and PB5143 (hereinafter referred to as "Trucks"): and
Whereas, as part of the inducement to Lender to enter into an Agreement to
lend Fifty Thousand Dollars ($50,000), Borrower has agreed to pledge the above
mentioned trucks. (said trucks being referred to herein as the "COLLATERAL") as
security for its obligations;
NOW, THEREFORE, in consideration of the agreements and promises herein recited
and contained, the sufficiency of which is hereby acknowledged, the parties
hereto hereby agree as follows:
1. PLEDGE OF COLLATERAL
Borrower has agreed to and does hereby pledge for the benefit of Lender the
COLLATERAL, said COLLATERAL being validly issued together with a duly
executed stock transfer powers. The COLLATERAL is pledged as security for
the payment in full of the obligations by Borrower to Lender in the amount
of Fifty Thousand Dollars ($50,000) plus Eighty Thousand (80,000) warrants
at an exercise price of $1.00. Lender shall have a lien upon security title
to and a security interest in all of the COLLATERAL delivered pursuant
hereto.
2. WARRANTIES
BORROWERS hereby warrants to LENDER that he is the sole and lawful owner of
the COLLATERAL; that the COLLATERAL is free and clear of all encumbrances
and liens and that BORROWER have full right to pledge, assign, convey and
transfer the COLLATERAL as provided herein.
3. TERMS AND CONDITIONS
LENDER by their execution of the loan Agreement, accept the pledge of the
COLLATERAL hereunder and agree to hold the COLLATERAL in accordance with
the provisions hereof and applicable law.
<PAGE> 2
4. REMEDIES FOR DEFAULT
A. The following constitutes a default hereunder:
(i) Failure by BORROWER to pay LENDER, on or before January 15, 1999
the sum of Fifty Thousand Dollars ($50,000) plus Eighty Thousand
(80,000) warrants at an exercise price of $1.00.; or
(ii) The breach of any of the warranties, representations, covenants,
or agreements applicable to the acquisition of the securities,
the subject matter of this Loan Agreement, and the failure to
cure the same after receipt of written notice as is set forth
therein.
B. Upon the occurrence of a default, LENDER;
(i) At any time thereafter, so long as such default is continuing
and, at its option, exercise its rights under this Loan
Agreement;
(ii) Vote all or any part of the COLLATERAL (whether or not
transferred into its name or the name of the nominee or nominees
as provided below) and give all consents, waivers and
ratifications in respect thereof and otherwise act with respect
thereto as though it were the outright owner thereof;
(iii) Exercise from time to time any right and remedies available
under the Uniform Commercial Code as in effect at that time; and
(iv) Subject to any requirements of applicable law, and without
limiting any rights otherwise available hereunder or under law,
transfer into its name, or into the name of any nominee or
nominees LENDER may appoint, all or part of the COLLATERAL and
retain the same in full satisfaction from any further; or sell,
assign and deliver the COLLATERAL at public or private sale for
cash, on credit or for other property, of immediate or future
delivery, without any assumption of credit risk, and for such
price or prices and on such terms as in LENDER'S uncontrolled
discretion may determine.
If any notification of intended disposition of any of the
COLLATERAL is required by law, such notification shall be deemed
reasonable and properly given if in writing and mailed at least
thirty (30) days before such disposition by prepaid registered
or certified mail, addressed to the address specified below.
C. If sold at public sale, any proceeds of any disposition of the
COLLATERAL may by applied to the payment of expenses in connection
<PAGE> 3
with the COLLATERAL, including reasonable attorney's fees and legal
expenses, and any balance of such proceeds after Fifty Thousand Dollars
($50,000) and expenses shall be returned. No delay or failure on the
part of LENDER the exercise of any right or remedy hereunder shall
operate as a waiver thereof, and no remedy hereunder shall preclude any
further exercise thereof or the exercise of any other right or remedy
hereunder.
6. TERMINATION
Upon the payment to LENDER from any source the sum of Fifty Thousand Dollars
($50,000) plus Eighty Thousand (80,000) warrants at an exercise price of
$1.00., this Loan Agreement shall terminate and LENDER shall cancel all
related agreements and/or deliver the COLLATERAL to BORROWER or the
designees of BORROWER.
7. SUCCESSORS AND ASSIGNS
LENDER and BORROWER agree that this Loan Agreement shall be binding upon,
inure to benefit of and be enforceable by the parties hereto and their
respective heirs, personal representatives, successors and assigns.
8. ATTORNEYS FEES
If action be instituted regarding this Pledge Agreement the prevailing party
shall be entitled to reasonable attorney's fees and costs.
9. PRIOR AGREEMENTS
This Pledge Agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof.
10. NOTICES
All notices, offers, acceptances and other communications hereunder shall be
made in writing signed by the party making the same, and shall be deemed
delivered on the date mailed if sent by certified or registered United
States mail, postage prepaid, to the addresses set forth below:
Dallas Cady Family, LLP
C/O Robert Cady
1700 Commerce St., Ste. 700
Dallas, Texas 75201
<PAGE> 4
Mark Zouvas
C/O Power Exploration, Inc.
5020 Collinwood Avenue, Suite 201
Fort Worth, Texas 76107
Or such other address as either party may specify by written notice to the
other party
11. APPLICABLE LAW
This Pledge Agreement shall be construed in accordance with and governed by
the laws of the State of Nevada.
12. COUNTERPART
This Pledge Agreement may be executed in counterpart and each copy so
executed shall be considered an original.
IN WITNESS WHEREOF, the following have executed and delivered and have
accepted this Pledge Agreement on the date given above.
LENDER: BORROWER:
DALLAS-CADY POWER EXPLORATION, INC
FAMILY, L.L.P.
By: /s/ ROBERT CADY By: /s/ MARK ZOUVAS
----------------------- -----------------------
Robert Cady Mark Zouvas, CFO
<PAGE> 1
EXHIBIT 10.14
LOAN AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into this 21st day of
October, 1998 by and between Power Exploration, Inc., a Nevada corporation (the
"Borrower") and Trident III, L.L.C., a Cayman Islands, West Indies exempted
company with limited life (the "Lender").
W I T N E S S E T H :
WHEREAS, the Borrower has requested that Lender make a loan to Borrower of
Two Hundred and Fifty Thousand dollars ($250,000), the proceeds of which shall
be used for general corporate purposes; and
WHEREAS, Lender has agreed to make such a loan available to Borrower upon
the terms and conditions hereinafter set forth.
NOW, THEREFORE, it is agreed as follows:
SECTION 1. Definitions. All of the terms defined in this Agreement shall
have such defined meanings when used in the other Loan Documents (as
hereinafter defined) and any certificates reports or other documents or
instruments issued under or delivered pursuant to this Agreement unless the
context shall require otherwise. For purposes of this Agreement, the
following terms shall have the following meanings:
1.1 "Accounts" means accounts, general intangibles, chattel paper,
instruments and documents, whether now owned or hereafter acquired by the
Borrower.
1.2 "Account Debtor" means any Person who is or who may become obligated
to Borrower under or on account of an Account.
1.3 "Additional Interest" means the one hundred thousand (100,000) shares
of Borrower common stock issued to the Lender simultaneous with the borrowing.
1.4 "Affiliate" means a Person (as hereinafter defined): (i) which
directly or indirectly through one or more intermediaries controls, is
controlled by, or is under common control with Borrower or a Subsidiary (as
hereinafter defined); (ii) which beneficially owns or holds 5% or more of any
class of the outstanding voting stock (or in the case of a Person which is not
a corporation, 5% or more of the equity interest) of Borrower or a Subsidiary
(as hereinafter defined); or (iii) 5% or more of any class of the outstanding
voting stock (or in the case of a Person which is not a corporation, 5% or more
of the equity interest of which is beneficially owned or held by Borrower or
Subsidiary). The term "control" means the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of
a Person, whether through ownership of voting stock, by contract or otherwise.
<PAGE> 2
1.5 "Agreement" shall include this Loan Agreement as amended, modified or
supplemented from time to time by agreement in writing signed by the Borrower
and the Lender.
1.6 "Authorized Officer" shall mean the Chief Executive Officer, the
President or the Chief Financial Officer of the Borrower or such other person
designated in writing to the Lender, who is authorized to obtain Advances or
otherwise act on behalf of the Borrower hereunder.
1.7 "Business Day" means a day upon which banks are open for the
transaction of business of the nature required by this Agreement in Nevada.
1.8 "Lender Expenditures" means with respect to any Person, all
expenditures made and liabilities incurred for the acquisition of assets which
are not, in accordance with Generally Accepted Accounting Principles (as
hereinafter defined), treated as expense items for such Person in the year made
or incurred or as a prepaid expense applicable to a future year or years.
1.9 "Cash Flow Ratio" for any given period means the Borrower's cash
receipts generated from operations compared to its cash disbursements paid or
accrued (computed in accordance with Generally Accepted Accounting Principles,
as hereinafter defined, consistently applied).
1.10 "Closing Date" means the date first set forth above.
1.11 "Collateral" means the Lender's security interest in those assets
described in the Security Agreement.
1.12 "Committed Amount" means the principal amount of Two Hundred and
Fifty Thousand dollars ($250,000) which Lender has agreed to lend to Borrower,
as more fully set forth herein, and as evidenced by the Note.
1.13 "Consistent Basis" means the accounting principles observed in the
current period are comparable in all material respects to those applied in the
preceding period, in accordance with Generally Accepted Accounting Principles.
1.14 "Current Assets" means cash and all other assets or resources of
Borrower and its subsidiaries which are expected to be realized in cash, sold
in the ordinary course of business, or consummated within one year, all
determined in accordance with Generally Accepted Accounting Principles.
1.15 "Current Liabilities" means the amount of all Liabilities (as
hereinafter defined) of Borrower and its Subsidiaries, if any, which by their
terms are payable within one year (including all indebtedness payable on demand
or maturing not more than one year from the date of computation and the current
portion of Indebtedness (as hereinafter defined) having a
2
<PAGE> 3
maturity date in excess of one year and all lease obligations payable within
one year) all determined in accordance with Generally Accepted Accounting
Principles.
1.16 "Debit Balance" means an amount equal to the excess, if any, of all
debit entries over all credit entries.
1.17 "Default" or "Event of Default" means the occurrence of all of any
of the events specified in Section 7 and/or set forth in the Note (as defined
below).
1.18 "Fiscal Year" means the twelve-month period (or shorter period in
the case of the first fiscal year) ending on December 31.
1.19 "Generally Accepted Accounting Principles" means those principles of
accounting set forth in Opinions of the Financial Accounting Standards Board or
the American Institute of Certified Public Accountants or which have other
substantial authoritative support generally followed by public accountants and
are applicable in the circumstances of the date of a report, as such principles
are from time to time supplemented and amended. All accounting terms not
specifically defined herein shall be construed in accordance with Generally
Accepted Accounting Principals.
1.20 "Indebtedness" means with respect to any Person, all indebtedness of
such Person for borrowed money, all indebtedness of such Person for the
acquisition of property other than purchases of products and merchandise in the
ordinary course of business, indebtedness secured by a lien, pledge or other
encumbrance on the property of such Person whether or not such indebtedness is
assumed, all liability of such Person by way of endorsements (other than for
collection or deposit in the ordinary course of business); all guarantees of
Indebtedness of any other Person (including any agreement, contingent or
otherwise, to purchase any obligation representing such Indebtedness or property
constituting security therefor, or to advance or supply funds for such purpose
or to maintain working capital or other balance sheet or income statement
condition, or any other arrangement in substance effecting any of the
foregoing); all leases and other items which in accordance with Generally
Accepted Accounting Principles are classified as liabilities on a balance sheet;
provided that in no event shall the term minority interest in the common stock
of subsidiaries, reserves for deferred income taxes and investment creditors,
other deferred credits and reserves, and deferred compensation obligations.
1.21 "Liabilities" mean all liabilities, obligations and indebtedness of
any and every kind and nature (including, without limitation, lease obligations
and interest, charges, expenses, attorneys' fees and other sums) chargeable to
the Borrower and future advances made to or for the benefit of the Borrower,
whether arising under this Agreement or arising under the Note or any of the
Loan Documents of the Borrower from any other source, whether heretofore, now
or hereafter owing, arising, due or payable from Borrower to the Lender and
however evidenced, credited, incurred, acquired or owing, whether primary,
secondary, direct, contingent, fixed, or otherwise, including obligation of
performance.
3
<PAGE> 4
1.22 "Loan" means the principal amount of Two Hundred and Fifty
Thousand dollars ($250,000) which Lender has agreed to lend Borrower.
1.23 "Loan Documents" means this Agreement, the Note, the Security
Agreement, all of which were executed on October 21, 1998, as well as any
stockholder agreement to which the Borrower and/or any of its stockholders is a
party and all documents, instruments, certificates, reports and all other
written matters whether heretofore, now, or hereafter executed by or on behalf
of the Borrower and/or delivered to Lender in connection herewith.
1.24 "Note" means the Note in the original aggregate principal amount
of Two Hundred and Fifty Thousand dollars ($250,000), substantially in the form
of Exhibit 1 attached hereto, the proceeds of which are to be used for general
corporate purposes.
1.25 "Net Income" shall have the meaning and be determined in
accordance with Generally Accepted Accounting Principles, reported on a
Consistent Basis.
1.26 "Payment Default" shall mean that Event of Default referenced in
Section 7.1 as well as the payment of any Debit Balance in cash.
1.27 "Person" means an individual, partnership, corporation, business
trust, joint stock company, trust, unincorporated organization, association,
joint venture or a government or agency or political subdivision thereof.
1.28 "Security Agreement" means that certain Security Agreement dated
October 21, 1998 between the Borrower and the Lender, securing the amounts owed
under this Agreement and the Note.
1.29 "Stockholders" means all of the stockholders of the Borrower
owning all of the issued and outstanding capital stock of the Borrower.
1.30 "Subsidiary" means any corporation of which at least a majority
of the outstanding securities having ordinary voting powers for the election of
directors are at the time owned by Borrower. As used herein, the term "Borrower"
shall be deemed to include all of Borrower's Subsidiaries, if any.
1.31 "Tangible Net Worth" means the consolidated net worth of
Borrower, at the time of determination, as determined in accordance with
Generally Accepted Accounting Principles, less:
(1) goodwill;
(2) any write-up in the value ascribed to any asset set forth
on Borrower's balance sheet resulting from a revaluation thereof; and
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(3) accounts receivable or notes receivable from officers,
directors and Affiliates of the Borrower.
1.32 "Termination Date" means the earlier of: (a) March 15, 1999; (b)
the date of the Borrower's receipt of five million dollars ($5,000,000) or more
from one or more debt or equity financings; (c) the date of the Borrower's full
prepayment of the Committed Amount and any and all interest accrued thereon in
accordance with the terms of this Agreement and the Note; or (d) the date of the
occurrence and continuance of an Event of Default (as hereinafter defined) or
otherwise.
SECTION 2. Loan.
2.1 Committed Amount. Subject to the terms and conditions of this
Agreement, the Lender agrees to loan to the Borrower Two Hundred and Fifty
Thousand dollars ($250,000) pursuant to the terms of the Note, the Security
Agreement, and the other Loan Documents upon the execution of this Agreement. A
legal fee of $2,500 payable to the counsel that prepared the documentation for
this transaction shall be deducted from the borrowing. The Lender shall record
as a debit on its books any amount so borrowed; upon any repayments, the Lender
shall record as a credit on its books any amount so repaid. Nothing set forth
herein shall prohibit the Borrower from making prepayments without penalty at
any time and from time to time. All provisions of the Note are incorporated
herein by reference.
2.2 Additional Interest. The Borrower will issue to the Lender, one
hundred thousand (100,000) shares of Borrower common stock, simultaneous with
the borrowing. The Lender's proportional interest in the Borrower shall not be
diluted and those shares issued to the Lender shall bear such non-dilution
rights until March 15, 1999, or until the date of the Borrower's full prepayment
of the Committed Amount and any and all interest accrued thereon, under the
terms of this Agreement and the Note. The foregoing provision will be
implemented immediately upon each subsequent stock, convertible instrument, or
warrant or option issuance. For this purpose, the issuance of common stock,
convertible or derivative securities, warrants or options shall cause the
immediate additional issuance of shares to the Lender based upon the number of
shares of common stock issuable upon conversion or exercise of the same as may
be best determined in good faith at the time of the issuance of such
instrument(s).
2.3 Payments of Interest and Principal. Interest on the average daily
Debit Balance shall accrue at the rate of ten percent (10%) per annum,
commencing on October 21, 1998 (with respect to the average Debit Balance
commencing on that date). The Borrower shall pay to Lender on the Termination
Date, the entire amount of the Debit Balance, together with accrued interest
thereon and any fees then owed. The Borrower shall pay the Debit Balance in
United States currency. Interest on the Note shall be computed and payable in
the manner set forth in Section 8.1 hereof.
2.4 Use of Proceeds. The proceeds evidenced by the Note shall be used
by the Borrower for general working capital purposes.
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SECTION 3. Representations and Warranties. In order to induce the Lender
to enter into this Agreement and to make the Loan available, the Borrower
represents and warrants to the Lender (which representations and warranties
shall survive the delivery of the documents mentioned herein, the extension of
the Advances contemplated hereby and the termination of this Agreement) as
follows:
3.1 Organization. Each of the Borrower and each Subsidiary, if any, is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its respective incorporation, has the power to own
its respective properties and to carry on its respective businesses as now
being conducted and is duly qualified to do business in every jurisdiction in
the United States of America for which the failure to so qualify will have a
material impact on the financial condition, operations, business or prospects
of the Borrower.
3.2 Power and Authority. The Borrower is duly authorized under all
applicable provisions of law to execute, deliver and perform this Agreement, the
Note, the Security Agreement and the other Loan Documents to which it is a
party, and all other action on the part of the Borrower required for the lawful
execution, delivery and performance thereof have been duly taken. This
Agreement, the Note, the Security Agreement and each of the other Loan
Documents, if any, upon the due execution and delivery thereof, are valid and
enforceable instruments, obligations or agreements of the parties, in accordance
with their respective terms, except as to enforcement of creditors rights
generally. Neither the execution of this Agreement, the Note, the Security
Agreement or the other Loan Documents, nor the fulfillment of or compliance with
their provisions and terms, conflicts with, or has or will result in a breach of
the terms, conditions or provisions of, or constitute a violation of or default
under: (a) any applicable law, regulation, order, writ or decree; or (b) any
agreement or instrument to which the Borrower is a party, or create any lien,
charge or encumbrance upon any of the property or assets of any of them pursuant
to the terms of any agreement or instrument to which any of them is a party or
by which any of them are bound except those in favor of the Lender expressly
created hereunder. No representation or warranty is made by Borrower with
respect to the enforceability of any Loan Document against the Lender.
3.3 Title to Assets. The Borrower has good and marketable title to all
of its properties and assets, all of which are free and clear of any and all
liens, mortgages, pledges, encumbrances or charges of any kind or nature
whatsoever except as disclosed to Lender in Schedule 3.3 hereto.
3.4 Litigation. There are no pending or threatened actions or
proceedings before any court, any state, provincial or federal regulatory body,
or any self-regulatory organization arbitrator or governmental or
administrative body or agency which may materially adversely affect the
properties, business or condition, financial or otherwise, of the Borrower or
in any way materially affect or call into question the power and authority of
the Borrower to enter into or perform this Agreement, the Note, the Security
Agreement and the Loan Documents.
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3.5 Taxes. The Borrower has filed all income tax returns (if any)
required to be filed by it and all taxes due thereon have been paid, and no
controversy in respect of additional income taxes, municipal, state or federal,
of the Borrower is pending or threatened.
3.6 Agreements or Restrictions Affecting the Borrower. The Borrower is
not a party to or otherwise bound by any contract or agreement or subject to any
restrictions which adversely affects the business, properties, or condition,
financial or otherwise, of the Borrower or restricts the Borrower's ability to
enter into this Agreement or any of the other of the Loan Documents or the
Borrower's ability to effect the transactions contemplated therein and herein.
3.7 Governmental Approval. No approval of any federal, state, municipal
or other local governmental authorities is necessary to carry out the terms of
this Agreement, the Note, the Security Agreement or any other Loan Documents,
and no consents or approvals are required in the making or performance of this
Agreement, the Note, the Security Agreement or any other Loan Documents.
3.8 No Untrue Statements. None of this Agreement, the Note, the
Security Agreement or any other Loan Documents nor any other agreements,
reports, schedules, certificates or instruments heretofore or simultaneously
with the execution of this Agreement delivered to Lender, contains any
misrepresentation or untrue statement of fact or omits to state any material
fact necessary to make any of such agreements, reports, schedules, certificates
or instruments not misleading.
3.9 Regulation T. No part of the proceeds of the Loan made pursuant to
this Agreement will be or have been used to purchase or carry or to reduce or
retire any loan incurred to purchase or carry, any margin stocks (within the
meaning of any regulation of the Board of Governors of the U.S. Federal Reserve
System) or to extend credit to others for the purpose of purchasing or carrying
any such margin stocks. If requested by the Lender, the Borrower will furnish to
the Lender, in connection with the loans hereunder, a statement in conformance
with the requirements of U.S. Federal Reserve Form U-1 referred to in said
regulations. In addition, no part of the proceeds of the loans hereunder will be
used for the purchase of commodity future contracts (or margins therefor for
short sales).
SECTION 4. Conditions Precedent to Making Loans.
The Lender shall not be obligated to make any Advances until all of the
following conditions have been satisfied by proper evidence, execution and/or
delivery to the Lender of the following items, all in form, and substance
reasonably satisfactory to the Lender:
(1) The Note;
(2) This Agreement;
(3) The Security Agreement;
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(4) Resolutions of the Board of Directors of the Borrower,
certified by the Secretary of the Borrower as of the Closing Date, approving or
otherwise ratifying the transactions contemplated by this Agreement, and
approving the form of this Agreement, the Note, the Security Agreement and any
other Loan Documents, and authorizing execution, delivery, and performance
thereof;
(5) Specimen signatures of the officer of the Borrower
executing this Agreement, the Note, the Security Agreement and the other Loan
Documents, and the officer authorized to borrow under the Note, certified by the
Secretary of the Borrower;
(6) Copies of the Article of Incorporation of the Borrower,
certified by an official of the Borrower's jurisdiction of formation,
incorporation or amalgamation and further certified by the Secretary of Borrower
not to have been altered or amended since certification by such official;
(7) A copy of the Bylaws of the Borrower, certified by the
Secretary of Borrower to be a true and correct copy as currently in effect;
(8) Such other instruments, documents or items as the Lender
may reasonably request; and
(9) No Event of Default shall have occurred and be continuing
under this Agreement, the Note, the Security Agreement or any other Loan
Document, nor shall the Borrower be in default under any other document to which
it is a party or by which it or any of its properties or assets are bound.
SECTION 5. Affirmative Covenants. The Borrower covenants that, so
long as any portion of the Liabilities remains unpaid and unless the Lender
otherwise consents in writing, it will and, where applicable, will cause each
Subsidiary, if any:
5.1 Financial Reports and Other Data.
(1) As soon as practicable and in any event within forty-five
(45) days after the end of each fiscal quarter deliver or cause to be delivered
to the Lender consolidated and consolidating balance sheets of the Borrower as
at the last day of such quarter and related consolidated and consolidating
statements of income and retained earnings and changes in financial condition
for such quarter and cumulative year-to-year date balance sheet and income
statement data for the Borrower setting forth in each case in comparative form
figures for the corresponding period in the preceding fiscal quarter, all in
reasonable detail and satisfactory in scope to the Lender, and certified by an
Authorized Officer of the Borrower to have been prepared in accordance with
Generally Accepted Accounting Principles applied on a consistent basis, subject
to changes resulting from normal, recurring year-end adjustments.
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(2) As soon as practicable and in any event within sixty (60)
days after the end of each Fiscal Year deliver or cause to be delivered to
Lender consolidated and consolidating balance sheets of Borrower and its
Subsidiaries, if any, as at the end of such Fiscal Year, and related statements
of income and retained earnings and changes in financial position in comparative
form corresponding figures from the preceding annual audit, all in reasonable
detail and satisfactory in scope to the Lender and audited by and containing (as
to the consolidated financial statements) an unqualified opinion of independent
certified public accountants acceptable to the Lender.
(3) The Borrower agrees to provide Lender with a copy of any
filing made with a federal, state, municipal or other local agency or
self-regulatory organization or any court, promptly after a reasonable request
therefor.
(4) Together with each delivery of those items required by
clauses (a) and (b) above, the Borrower shall deliver to the Lender a
certificate of the Authorized Officer setting forth that: (i) to the best of its
knowledge, the Borrower has kept, observed, performed and fulfilled each and
every agreement binding on it contained in this Agreement and the other Loan
Documents, and is not at the time in default of the keeping, observance,
performance of fulfillment of any of the terms, provisions and conditions
hereof; and (ii) no Event of Default has occurred, or specifying all such Events
of Defaults of which it may have knowledge;
(5) Together with each delivery of the financial statements
required by clause (b) above, the Borrower shall deliver to the Lender letters
of representation signed by the most senior officer of the Borrower indicating
and confirming that the Borrower is not in breach of the representations,
warranties or covenants set forth in this Agreement;
(6) With reasonable promptness, deliver to the Lender a copy
of all reports and management letters, if any, delivered to Borrower by its
independent certified public accountants; and
(7) With reasonable promptness, deliver such additional
financial or other data as the Lender may reasonably request. The Lender is
hereby authorized to deliver a copy of any financial statements or any other
information relating to the business operations or financial condition of the
Borrower which may be furnished to it or come to its attention pursuant to this
Agreement or otherwise, to any regulatory body or agency having jurisdiction
over the Lender or to any person which shall have the right or obligation to
succeed to all or any part of the Lender's interest in the Note.
5.2 Taxes and Liens. Promptly pay, or cause to be paid, all taxes,
assessments and other governmental charges which may lawfully be levied or
assessed upon the income or profits of the Borrower, or upon any property, real,
personal or mixed, belonging to the Borrower, or upon any part thereof, and also
any lawful claims for labor, material and supplies which if unpaid, might become
a lien or charge against any such property; provided, however, the Borrower
shall not be required to pay any such tax, assessment, charge, levy or claim so
long as the validity thereof shall be actively contested in good faith by proper
proceedings; but
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provided further that any such tax, assessment, charge, levy or claim shall be
paid or bonded in a manner satisfactory to the Lender forthwith upon the
commencement of proceedings to foreclose any lien securing the same.
5.3 Business and Existence. Do or cause to be done all things necessary
to preserve and to keep in full force and effect any licenses necessary to the
business of each of the Borrower and its Subsidiaries, if any, its corporate
existence and rights of its franchises, trade names, trademarks, and permits
which are reasonably necessary for the continuance of its business; and
continue to engage principally in the business currently operated by the
Borrower and its Subsidiaries, if any.
5.4 Insurance and Properties. Keep its business and properties insured
at all times with responsible insurance companies and carry such types and
amounts of insurance as are required by all federal, state and local
governments in the areas which Borrower and its Subsidiaries, if any, do
business and as are usually carried by corporations engaged in the same or
similar business similarly situated. In addition, Borrower and its
Subsidiaries shall maintain in full force and effect policies of liability
insurance in amounts at least equal to that currently in effect.
5.5 Maintain Property. Maintain its property in good order and repair
and, from time to time, make all needed and proper repairs, renewals,
replacements, additions and improvements thereto, so that the business carried
on may be properly and advantageously conducted at all times in accordance with
prudent business management, and maintain annually adequate reserves for
maintenance thereof.
5.6 True Book. Keep true books of record and account in which full, true
and correct entries will be made of all of its dealings and transactions, and
set aside on its books such reserves as may be required by Generally Accepted
Accounting Principles, consistently applied, with respect to all taxes,
assessments, charges, levies and claims referred to in Section 5.2 hereof, and
with respect to its business in general, and include such reserves in interim
as well as year-end financial statements.
5.7 Pay Indebtedness to Lender and Perform Other Covenants. (a) Make full
and timely payment of the principal of and interest on the Note and all other
indebtedness of the Borrower to the Lender, whether now existing or hereafter
arising, including the payment of fees; and (b) duly comply with all terms and
covenants contained in this Agreement, the Security Agreement, the other Loan
Documents and any other instruments and documents given to the Lender pursuant
to this Agreement.
5.8 Right of Inspection. Permit any person designated by the Lender, at
the Lender's expense, to visit and inspect any of the properties, books and
financial reports of the Borrower and its Subsidiaries, if any, all at such
reasonable times and as often as the Lender may reasonably request.
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5.9 Observance of Laws. Conform to and duly observe all laws,
regulations and other valid requirements of any regulatory authority with
respect to the conduct of its business.
5.10 Borrower's Knowledge of Default. Upon an officer or director of the
Borrower obtaining knowledge of, or threat of, an Event of Default hereunder or
under any other obligation of the Borrower, cause such officer to promptly,
within no more than five (5) days, deliver to the Lender notice thereof
specifying the nature thereof, the period of existence thereof, and what action
the Borrower proposes to take with respect thereto.
5.11 Notice of Proceedings. Upon an officer or director of the Borrower
obtaining knowledge of any material litigation, dispute or proceedings being
instituted or threatened against the Borrower, or any attachment, levy,
execution or other process being instituted against any assets of the Borrower,
cause such officer to promptly, within no more than five (5) days, give the
Lender written notice of such litigation, dispute, proceeding, levy, execution
or other process.
5.12 Further Assurances. At its cost and expense, the Borrower hereby
expressly agrees to execute any additional documents necessary in order to
correct, amend, modify or take any other action necessary in order to effect
the transactions contemplated by the Loan Documents. In the event that the
Borrower fails to execute and deliver any such documents within seven (7) days
after Lender requests same, the Borrower hereby expressly grants to the Lender
an irrevocable power of attorney, to execute, deliver and file any such
documents in the name of the Borrower. The foregoing irrevocable power of
attorney shall be deemed to be irrevocable and coupled with an interest.
5.13 Continued Service by Current Officers. Cause the members of current
management to remain active in the day-to-day operations of the Borrower unless
the Lender otherwise consents in writing to a change in management.
SECTION 6. Negative Covenants. The Borrower covenants and agrees that,
so long as any portion of the Liabilities remains unpaid and unless the Lender
otherwise gives its prior written consent, it will not and, where applicable,
will not cause any Subsidiary, directly or indirectly, to:
6.1 Mortgages, Liens, Etc. Incur, create, assume or permit to exist,
other than in the ordinary course of business, any mortgage, pledge, security
interest, encumbrance, lien or charge of any kind, including liens arising
under conditional sales or other title retention agreements upon any of assets
or properties of any character, without the prior written consent of the
Lender, which consent will not be unreasonably withheld. Nothing set forth
herein shall preclude the Company from entering into bona fide pledges of its
shares in arm's length transactions.
6.2 Capital Expenditures. Make or become committed to make, directly or
indirectly, until the Termination Date, capital expenditures (including,
without limitation, capitalized leases) amounting to in excess of $100,000 in
the aggregate, without the prior
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written consent of the Lender, which consent will not be unreasonably withheld;
provided however, that in the event that the Borrower has borrowed and owes the
Lender the maximum amount available to the Borrower hereunder, the Borrower
may not make or become committed to make, directly or indirectly, any capital
expenditure without the prior written consent of the Lender.
6.3 Loans and Investments. Except as provided in Schedule 6.3 and other
than in the ordinary course of the energy business, lend or advance money,
credit or property to any Person, or invest in (by capital contribution or
otherwise), or purchase or repurchase the stock or indebtedness or assets or
properties of any Person, or agree to do any of the foregoing, without the
prior written consent of the Lender, which consent will not be unreasonably
withheld.
6.4 Guaranties. Guarantee, assume, endorse or otherwise become or remain
liable in connection with the obligations (including accounts payable) of any
other Person, other than in the ordinary course of business, without the prior
written consent of the Lender, which consent will not be unreasonably withheld.
6.5 No Further Issuance of Securities. The Borrower hereby expressly
agrees not to (other than in connection with the acquisition of the Borrower by
the Lender (or any of its Subsidiaries)) create, issue or permit the issuance
of any additional securities of the Borrower or of any of its Subsidiaries, if
any, or any rights, options or warrants to acquire any such securities, without
the prior written consent of the Lender, which consent will not be
unreasonably withheld; provided that nothing herein shall preclude the Company
from engaging in arm's length transactions involving the issuance of
securities, the issuance of securities pursuant to existing rights, options,
instruments, etc., or the issuance of securities pursuant to employee stock
options issued to employees and having an exercise price equal to or in excess
of fair market value at the time of grant.
SECTION 7. Events of Default.
7.1 Defaults. Each of the following shall constitute an event of default
(an "Event of Default") hereunder: (i) the failure to pay when due any
principal or interest hereunder or under the Note and the continuance of such
failure for a period of ten (10) days; (ii) any other violation by the Borrower
of any representation, warranty, covenant or agreement contained in this
Agreement, the Note, the Security Agreement, any other Loan Document or any
other document or agreement to which the Borrower is a party or by which it or
any of its properties, assets or outstanding securities are bound; (iii) except
as may otherwise be contemplated by the terms of this Agreement, execution of
any agreement, letter, memorandum of understanding or similar document relating
to the transfer, disposition or sale of any or all of the assets of the
Borrower to anyone other than the Lender; (iv) the assignment for the benefit
of creditors by the Borrower; (v) the application for the appointment of a
receiver or liquidator for the Borrower or the property of the Borrower; (vi)
the issuance of an attachment or the entry of a judgment against the Borrower;
(vii) a default by the Borrower with respect to any other indebtedness due to
the Lender, or with respect to any material
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installment indebtedness whether or not owing to the Lender; (viii) the making
or sending of a notice of intended bulk sale by the Borrower; or (ix) the
termination of existence, dissolution or any other insolvency of the Borrower.
Upon the occurrence of any of the foregoing Events of Default, the Note shall be
considered to be in default and the entire unpaid principal sum hereof, together
with accrued interest, shall at the option of the holder thereof become
immediately due and payable in full. Upon the occurrence of an Event of Default
and the placement of the Note or this Agreement in the hands of an attorney for
collection, the Borrower agrees to pay reasonable collection costs and expenses,
including reasonable attorneys' fees and interest from the date of the default
at the maximum rate permitted by law computed on the unpaid principal balance.
7.2 Waiver of Default. The Lender may waive any Event of Default
hereunder, provided, that such waiver shall be evidenced by written notice or
other document specifying the Event or Events of Default being waived and
shall be binding on any subsequent lenders under the Note.
SECTION 8. Miscellaneous.
8.1 Computation of Interest and Payment and Prepayment of Principal.
Interest on the Note shall be computed on the basis of a year of 365 days
commencing on October 21, 1998. If any principal amount under the Note becomes
due and payable on other than a Business Day, the maturity thereof shall be
extended to the next succeeding Business Day and interest on such principal
shall be payable at the then applicable rate during such extension period.
8.2 Waiver of Default. The Lender may, by written notice to the Borrower,
at any time and from time to time, waive any default in the performance or
observance of any condition, covenant or other term hereof or any Event of
Default which shall have occurred hereunder and its consequences. Any such
waiver shall be for such period and subject to such conditions as shall be
specified in any such notice. In the case of any such waiver, the Borrower and
the Lender shall be restored to their former position and rights hereunder and
under the other Loan Documents, and any Event of Default so waived shall be
deemed to be cured and not continuing; but no such waiver shall extend to any
subsequent or other Event of Default, or impair any right consequent thereon.
8.3 Amendments and Waivers. The Lender and the Borrower may, subject to
the provisions of this section, from time to time, enter into written
agreements supplemental hereto for the purpose of adding any provisions to this
Agreement or the other Loan Documents or changing in any manner the rights of
the Lender or of the Borrower hereunder and the Lender may execute and deliver
to the Borrower a written instrument waiving any of the requirements of this
Agreement. Any such written supplemental agreement or waiver shall be binding
upon the Borrower and Lender.
8.4 Notices. All notices, requests and demands to or upon the respective
parties hereto under this Agreement and all other Loan Documents shall be
deemed to have been given
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or made when deposited in the mail, postage prepaid by registered or certified
mail, return receipt requested, addressed as follows or to such other address
as may be hereafter designated in writing by the respective parties.
The Borrower: Power Exploration, Inc.
5020 Collinwood Avenue #201
Fort Worth, Texas 76107
Attention: Mark Zouvas, CFO
The Lender: Trident III, L.L.C.
700 Gemini
Houston, TX 77058
Attention: Jeffrey W. Tomz
with copy to: De Martino, Finkelstein, Rosen & Virga
1818 N Street, N.W.
Suite 400
Washington, D.C. 20036
Attention: Ralph V. De Martino
except in cases where it is expressly herein provided that such notice, request
or demand is not effective until received by the party to whom it is addressed.
8.5 No Waiver; Cumulative Remedies. No waiver of any provision hereof
shall be deemed to operate as a waiver of any other provision hereof. In the
event that the Borrower shall be deemed to have waived any provision hereof at
any time, such waiver shall not be deemed to have extended to any other
provision hereof at the time such waiver was deemed to have occurred or at any
other time. No failure to exercise and no delay in exercising, on the part of
Lender, any right, power or privilege hereunder, shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies
herein and in the other Loan Documents provided are cumulative and not
exclusive of any rights or remedies provided by law.
8.6 Survival of Agreements. All agreements, representations and
warranties made herein shall survive the execution and delivery of this
Agreement and the other Loan Documents and the making and renewal of loans
hereunder and the termination of this Agreement and the other Loan Documents.
8.7 Governing Law. This Agreement and the legal relations among the
parties hereto shall be governed by and construed in accordance with the laws
of the State of Nevada without regard to its conflicts of law doctrine. Each of
the parties hereto irrevocably consents to the jurisdiction of the courts
located in the State of Nevada.
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8.8 Enforceability of Agreement. Should any one or more of the provisions
of this Agreement be determined to be illegal or unenforceable as to one or
more of the parties, all other provisions nevertheless shall remain effective
and binding on the parties hereto, up to the full amount permitted by law.
8.9 Usury Savings Clause. Notwithstanding any other provision herein, if
the aggregate interest rate charged under the Note, including all charges or
fees in connection therewith deemed in the nature of interest exceeds the
maximum legal rate under Nevada law, if any, then the Lender shall have the
right to make such adjustments as are necessary to reduce the aggregate
interest rate to the maximum legal rate. The Borrower waives any right to
prior notice of such adjustment and further agree that such adjustment may be
made by the Lender subsequent to notification from the Borrower that the
aggregate interest charged exceeds the maximum legal rate.
8.10 Execution of Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original as
against any party whose signature appears thereon, and all of which shall
together constitute one and the same instrument.
8.11 Stamp or Other Taxes. The Borrower agrees to pay any and all
documentary, intangible stamp or excise taxes now or hereafter payable in
respect to this Agreement and the other Loan Documents or any modification
thereof, and shall hold the Lender harmless with respect thereto. The Borrower
further agrees that Lender may deduct from any account of the Borrower the
amount of any such documentary or intangible stamp or tax payable, the decision
of the Lender as to the amount thereof to be conclusive, absent manifest error.
8.12 Waiver of Trial by Jury. THE BORROWER HEREBY WAIVES ANY RIGHT TO A
TRIAL BY JURY IN ANY ACTION BROUGHT BY THE LENDER WHETHER UNDER THIS AGREEMENT
OR ANY OF THE OTHER LOAN DOCUMENTS TO ENFORCE ANY CLAIMS OR RIGHT ARISING
HEREUNDER OR THEREUNDER.
8.13 Assignability. This Agreement shall inure to the benefit and be
binding upon the parties hereto and their respective successors and assigns.
This Agreement shall not be assignable, in whole or in part, by the Borrower,
without the prior written consent of the Lender. This Agreement may be assigned
or transferred, in whole or in part by the Lender upon written notice to the
Borrower.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
15
<PAGE> 16
IN WITNESS WHEREOF, the Borrower and the Lender have caused this
Agreement to be duly executed by their duly authorized officers, all as of the
day and year first above written.
* * * * *
ATTEST: POWER EXPLORATION, INC.
By: By:
------------------------- -------------------------------
Name: Mark Zouvas
Title: Chief Financial Officer
ATTEST: TRIDENT III, INC.
By: By:
------------------------- -------------------------------
Secretary Name:
--------------------------
Title:
-------------------------
16
<PAGE> 17
THIS NOTE HAS NOT BEEN THE SUBJECT OF REGISTRATION UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR UNDER THE SECURITIES LAWS OF ANY STATE AND THE SAME HAS
BEEN ISSUED IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF
SAID ACT AND SUCH LAWS. THIS NOTE MAY NOT BE SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT AS PERMITTED UNDER SUCH SECURITIES
LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
10% PROMISSORY NOTE
$250,000 George Town, Grand Cayman
October 21, 1998
FOR VALUE RECEIVED, Power Exploration, Inc., a Nevada corporation (herein
referred to as the "Borrower"), promises to pay to the order of Trident III,
L.L.C., a Cayman Islands exempted company ("Lender"), on the Termination Date,
as defined below, in lawful currency of the United States of America, the
principal amount of Two Hundred Fifty Thousand Dollars ($250,000). Borrower
further promises to pay interest to the Lender at the above address, in like
currency, from the date hereof on the entire unpaid principal amount owing
hereunder from time to time until the entire unpaid principal amount hereof is
paid in full, at a rate per annum equal to ten percent (10%). Interest shall
be computed on the basis of a 365-day year and shall be calculated for the
actual number of days elapsed.
Payment of principal and interest hereunder shall be due and payable on
the earliest of the following (the "Termination Date"): (a) March 15, 1999; or
(b) the date of Borrower's receipt of Five Million Dollars ($5,000,000) from
one or more debt or equity financings; or (c) the date of the Borrower's full
prepayment of the Committed Amount and any and all interest accrued thereon in
accordance with the terms of this Note and the Loan Agreement; or (d) if sooner
terminated pursuant to any other provisions hereof, or of the Loan Agreement
and the Security Agreement between the Borrower and the Lender, executed of
even date.
1. Prepayment. This Note may be prepaid in whole or in part without
penalty. Any payments made pursuant to this Note shall be applied first toward
any fees and costs due, then toward interest and then toward principal.
2. Presentment. Except as set forth herein, Borrower waives
presentment, demand and presentation for payment, notice of nonpayment and
dishonor, protest and notice of protest and expressly agrees that this Note or
any payment hereunder may be extended from time to time by the Lender without
in any way affecting the liability of Borrower.
<PAGE> 18
3. Events of Default.
(a) Upon the occurrence of an Event of Default as specified in the
Loan Agreement, the Security Agreement, or in this Note, this Note shall be
considered to be in default and the entire unpaid principal sum hereof, together
with accrued interest, shall at the option of the holder hereof become
immediately due and payable in full. Upon the occurrence of an Event of Default
and the placement of this Note in the hands of an attorney for collection, the
Borrower agrees to pay reasonable collection costs and expenses, including
reasonable attorneys' fees and interest from the date of the default at the
maximum rate permitted by law computed on the unpaid principal balance.
(b) The Lender may waive any Event of Default hereunder. Such
waiver shall be evidenced only by written notice or other document specifying
the Event or Events of Default being waived and shall be binding on all existing
or subsequent Lenders under this Note.
(c) Failure to make any payment of interest or principal, when
due, shall constitute an Event of Default hereunder.
4. Construction; Governing Law. The validity and construction of this
Note and all matters pertaining hereto are to be determined in accordance with
the laws of the State of Nevada without regard to the conflicts of law
principles thereof.
5. Notice. Any notice regarding this Note to the Borrower shall be
made at 5020 Collinwood Avenue #201, Fort Worth, Texas 76107, Attention of Mark
Zouvas. Notice to the Lender shall be made c/o Benchmark Equity Group, Inc., 700
Gemini, Houston, Texas 77058, Attention of Jeffrey W. Tomz.
IN WITNESS WHEREOF, Borrower, by its appropriate officers thereunto
duly authorized, has executed this Note and affixed its corporate seal as of
this 21st day of October, 1998.
POWER EXPLORATION, INC.
By: (SEAL)
----------------------------
Mark Zouvas, Chief Financial
Officer
2
<PAGE> 1
EX-10.15 AGREEMENT OF SALE AND PURCHASE WITH MB EXPLORATION, LLC DATED
DECEMBER 15, 1998
AGREEMENT OF SALE AND PURCHASE
This Agreement dated December 15, 1998, ("Agreement Date") by and between
MB Exploration, L.L.C., a Delaware Limited Liability Company (herein called
"SELLER") and Power Exploration, Inc., a Nevada corporation (herein called
"BUYER");
W I T N E S S E T H:
1. PROPERTY TO BE SOLD AND PURCHASED. Seller agrees to sell and Buyer
agrees to purchase, for the consideration hereinafter set forth, and subject to
the terms and provisions herein contained, the following described properties,
rights and interests:
(a) All right, title and interest of Seller in and to the oil, gas
and/or mineral leases described on Exhibit A-1 hereto (and any
ratifications and/or amendments to such leases, whether or not such
ratifications or amendments are described on such Exhibit A-1); and
(b) To the extent assignable, all rights, titles and interests of
Seller in and to all presently existing and valid operating agreements,
and other agreements and contracts which relate to any of the properties
described in subsection (a) above, to the extent and only to the extent
such rights, titles and interests are attributable to the properties
described in subsection (a) above, including without limitation, those
listed on Exhibit A-3; and
(c) All right, title and interest of Seller in the 3D Seismic Data
described on Exhibit A-2 hereto, and subject to the pertinent terms and
conditions of any agreements associated therewith, as well as the
agreements listed in (b) above.
The properties, rights and interests specified in the foregoing subsection (a)
exclusive of the properties, rights and interests excluded below, are herein
sometimes collectively called the "Oil and Gas Properties," and the properties,
rights and interests specified in the foregoing subsections (a), (b), and (c)
exclusive of the properties, rights and interests excluded below, are herein
sometimes collectively called the "Properties." The Properties do not include,
and there is hereby expressly excepted and excluded therefrom and reserved to
Seller, (a) all overriding royalty interests, net profits interests and other
non cost bearing interests described in Exhibit A-4 attached and (b) all claims
and causes of action arising, occurring or existing in favor of Seller prior to
the Agreement Date (including, but not limited to any and all contract rights,
claims receivable, revenues, recoupment rights, recovery rights, accounting
adjustments, mispayments, erroneous payments or claims of any nature in favor of
Seller and relating or accruing to any time period prior to the Agreement Date).
Buyer is aware that the interests listed on Exhibit A-1 ("Earned Interests")
include certain interests that have been earned by Seller under the Agreements
listed on Exhibit A-3, but as of the Agreement date, Seller has not received
assignment of all the Earned Interests. By this Agreement, Seller agrees to
convey at Closing any and all rights to receive any Earned Interests.
2. PURCHASE PRICE. The purchase price for the Properties shall be Three
Hundred Fifty Thousand Dollars ($350,000.00) and shall be adjusted for any
adjustments pursuant to Section 10. The purchase price after such adjustments
shall be the Purchase Price. The Purchase Price shall be paid in cash at the
Closing as hereinafter provided.
<PAGE> 2
3. REPRESENTATIONS OF SELLER.
(a) REPRESENTATIONS. Seller represents to Buyer that:
(i) ORGANIZATION AND QUALIFICATION. Seller is a limited
liability company duly organized and legally existing and in good
standing under the laws of the State of Delaware and is qualified
to do business and in good standing in Texas.
(ii) DUE AUTHORIZATION. Seller has full power to enter into
and perform its obligations under this Agreement and has taken all
proper action to authorize entering into this Agreement and
performance of its obligations hereunder.
(iii) APPROVALS. Other than requirements (if any) that there
be obtained consents to assignment (or waivers of preferential
rights to purchase) from third parties, and except for approvals
("Routine Governmental Approvals"), if any, required to be obtained
from governmental entities who are lessors under leases forming a
part of the Oil and Gas Properties (or who administer such leases
on behalf of such lessors) which are customarily obtained
post-closing, to Seller's knowledge (which, as used in this
Agreement, shall mean to the actual knowledge of Seller's executive
personnel in its office located at the address set forth in Section
14, neither the execution and delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, nor the
compliance with the terms hereof, will result in any default under
any agreement or instrument to which Seller is a party or by which
the Properties are bound, or violate any order, writ, injunction,
decree, statute, rule or regulation applicable to Seller or to the
Properties.
(iv) VALID, BINDING AND ENFORCEABLE. This Agreement
constitutes (and the Conveyance provided for herein to be delivered
at Closing will, when executed and delivered, constitutes) the
legal, valid and binding obligation of Seller, enforceable in
accordance with its terms, except as limited by bankruptcy or other
laws applicable generally to creditor's rights and as limited by
general equitable principles.
(v) LITIGATION. There are no pending suits, actions, or other
proceedings in which Seller is a party which affect the Properties
in any material adverse respect (including, without limitation, any
actions challenging or pertaining to Seller's title to any of the
Properties), or affecting the execution and delivery of this
Agreement or the consummation of the transactions contemplated
hereby.
(b) DISCLAIMERS. THE EXPRESS REPRESENTATIONS AND WARRANTIES OF
SELLER CONTAINED IN SECTION 3(A) ABOVE ARE EXCLUSIVE AND ARE IN LIEU OF
ALL OTHER REPRESENTATIONS AND WARRANTIES, EXPRESS, IMPLIED, STATUTORY OR
OTHERWISE, AND SELLER EXPRESSLY DISCLAIMS ANY AND ALL SUCH OTHER
REPRESENTATIONS AND WARRANTIES. WITHOUT LIMITATION OF THE FOREGOING, THE
PROPERTIES SHALL BE CONVEYED PURSUANT HERETO WITHOUT ANY WARRANTY OR
REPRESENTATION WHETHER EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, RELATING
TO TITLE TO THE PROPERTIES OR RELATING TO THE CONDITION, QUANTITY,
QUALITY, FITNESS FOR A PARTICULAR PURPOSE, CONFORMITY TO THE MODELS OR
SAMPLES OF MATERIALS OR MERCHANTABILITY OF ANY EQUIPMENT OR ITS FITNESS
FOR ANY PURPOSE, AND, EXCEPT AS PROVIDED OTHERWISE IN THE FIRST SENTENCE
OF THIS PARAGRAPH, WITHOUT ANY OTHER EXPRESS, IMPLIED, STATUTORY OR OTHER
WARRANTY OR REPRESENTATION WHATSOEVER. BUYER IS RELYING SOLELY UPON ITS
OWN
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<PAGE> 3
INSPECTION OF THE PROPERTIES, AND BUYER SHALL ACCEPT ALL OF THE SAME IN
THEIR "AS IS," "WHERE IS" CONDITION. ALSO WITHOUT LIMITATION OF THE
FOREGOING, SELLER MAKES NO WARRANTY OR REPRESENTATION, EXPRESS, IMPLIED,
STATUTORY OR OTHERWISE, AS TO THE ACCURACY OR COMPLETENESS OF ANY DATA,
REPORTS, RECORDS, PROJECTIONS, INFORMATION OR MATERIALS NOW, HERETOFORE
OR HEREAFTER FURNISHED OR MADE AVAILABLE TO BUYER IN CONNECTION WITH THIS
AGREEMENT OR MADE AVAILABLE TO BUYER BY SELLER OR BY SELLER'S AGENTS OR
REPRESENTATIVES. ANY AND ALL SUCH DATA, RECORDS, REPORTS, PROJECTIONS,
INFORMATION AND OTHER MATERIALS (WRITTEN OR ORAL) FURNISHED BY SELLER OR
OTHERWISE MADE AVAILABLE OR DISCLOSED TO BUYER ARE PROVIDED BUYER AS A
CONVENIENCE AND SHALL NOT CREATE OR GIVE RISE TO ANY LIABILITY OF OR
AGAINST SELLER AND ANY RELIANCE ON OR USE OF THE SAME SHALL BE AT BUYER'S
SOLE RISK TO THE MAXIMUM EXTENT PERMITTED BY LAW. PROVIDED, HOWEVER,
SELLER WARRANTS THAT, TO ITS KNOWLEDGE, IT HAS NOT CONVEYED THE SUBJECT
PROPERTIES TO ANY THIRD PARTY EXCEPT AS PROVIDED PURSUANT TO THE
AGREEMENTS LISTED IN EXHIBIT A-3 OF THE AGREEMENT OF SALE AND PURCHASE
DESCRIBED BELOW AND ANY NON-EXCLUSIVE LICENSE OF DATA DESCRIBED ON
EXHIBIT A-2 OF THE AGREEMENT OF SALE AND PURCHASE DESCRIBED BELOW.
4. REPRESENTATIONS OF BUYER. Buyer represents to Seller that:
(a) ORGANIZATION AND QUALIFICATION. Buyer is a corporation duly
organized and legally existing and in good standing under the laws of the
State of Nevada, and is qualified to do business and in good standing in
Texas. Buyer is also qualified to own and operate oil and gas properties
with all applicable governmental agencies having jurisdiction over the
Properties, to the extent such qualification is necessary or appropriate
or will be necessary or appropriate upon consummation of the transactions
contemplated hereby.
(b) DUE AUTHORIZATION. Buyer has full power to enter into and
perform its obligations under this Agreement and has taken all proper
action to authorize entering into this Agreement and performance of its
obligations hereunder.
(c) APPROVALS. Other than requirements (if any) that there be
obtained consents to assignment (or waivers of preferential rights to
purchase) from third parties, and except for Routine Governmental
Approvals, neither the execution and delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, nor the compliance
with the terms hereof, will result in any default under any agreement or
instrument to which Buyer is a party, or violate any order, writ,
injunction, decree, statute, rule or regulation applicable to Buyer.
(d) VALID, BINDING AND ENFORCEABLE. This Agreement constitutes (and
the Conveyance provided for herein to be delivered at Closing will, when
executed and delivered, constitutes) the legal, valid and binding
obligation of Buyer, enforceable in accordance with its terms, except as
limited by bankruptcy or other laws applicable generally to creditor's
rights and as limited by general equitable principles.
(e) NO LITIGATION. There are no pending suits, actions, or other
proceedings in which Buyer is a party (or, to Buyer's knowledge, which
have been threatened to be instituted against Buyer) which affect the
execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby.
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<PAGE> 4
(f) KNOWLEDGEABLE BUYER, NO DISTRIBUTION. Buyer is a knowledgeable
purchaser, owner and operator of oil and gas properties, has the ability
to evaluate (and in fact has evaluated) the Properties for purchase, and
is acquiring the Properties for its own account and not with the intent
to make a distribution in violation of the Securities Act of 1933 as
amended (and the rules and regulations pertaining thereto) or in
violation of any other applicable securities laws, rules or regulations.
5. CERTAIN COVENANTS OF SELLER PENDING CLOSING. Between the date of this
Agreement and the Closing Date:
(a) ACCESS BY BUYER.
(i) RECORDS. Seller will give Buyer, or Buyer's authorized
representatives, at Seller's office and at all reasonable times
before the Closing Date, access to Seller's records pertaining to
the ownership of the Properties for the purpose of conducting due
diligence reviews contemplated by Section 6 below. Buyer may make
copies of such records, at its expense, but shall, if Seller so
requests, return all copies so made if the Closing does not occur.
All costs of copying such items shall be borne by Buyer. Seller
shall not be obligated to provide Buyer with access to any records
or data (i) which Seller considers to be proprietary or
confidential to it, (ii) which Seller cannot provide to Buyer
without, in its opinion, breaching, or risking a breach of,
agreements with other parties, or waiving, or risking waiving,
legal privilege or (iii) any Seismic Data. BUYER RECOGNIZES AND
AGREES THAT ALL MATERIALS MADE AVAILABLE TO IT IN CONNECTION WITH
THE TRANSACTION CONTEMPLATED HEREBY, WHETHER MADE AVAILABLE
PURSUANT TO THIS SECTION OR OTHERWISE, ARE MADE AVAILABLE TO IT AS
AN ACCOMMODATION, AND WITHOUT REPRESENTATION OR WARRANTY OF ANY
KIND AS TO THE ACCURACY AND COMPLETENESS OF SUCH MATERIALS. NO
WARRANTY OF ANY KIND IS MADE BY SELLER AS TO THE INFORMATION
SUPPLIED TO BUYER OR WITH RESPECT TO PROPERTIES TO WHICH THE
INFORMATION RELATES, AND BUYER EXPRESSLY AGREES THAT ANY
CONCLUSIONS DRAWN THEREFROM SHALL BE THE RESULT OF ITS OWN
INDEPENDENT REVIEW AND JUDGMENT.
(ii) PHYSICAL INSPECTION. Seller shall make a good faith
effort to give Buyer, or Buyer's authorized representatives, at all
reasonable times before the Closing Date and upon adequate notice
to Seller, physical access to the Oil and Gas Properties for the
purpose of inspecting same. Buyer recognizes that Seller's ability
to obtain access to such properties, and the manner and extent of
such access, is subject to third parties. Buyer agrees to comply
fully with the rules, regulations and instructions issued by Seller
(and, where Properties are in the possession of other parties, such
other parties) regarding the actions of Buyer while upon, entering
or leaving the Properties.
(iii) EXCULPATION AND INDEMNIFICATION. If Buyer exercises
rights of access under this Section or otherwise, or conducts
examinations or inspections under this Section or otherwise, then
(a) such access, examination and inspection shall be at Buyer's
sole risk, cost and expense and Buyer waives and releases all
claims against Seller (and its Members and its and their affiliates
and the respective directors, officers, employees, attorneys,
contractors and agents of such parties) arising in any way
therefrom or in any way connected therewith or arising in
connection with the conduct of its directors, officers, employees,
attorneys, contractors and agents in connection therewith and (b)
Buyer shall indemnify, defend and hold harmless Seller (and its
Members and their affiliates and the respective officers,
directors,
4
<PAGE> 5
employees, attorneys, contractors and agents of such parties) from
any and all claims, actions, causes of action liabilities,
damages, losses, costs or expenses (including, without limitation,
court costs and attorneys fees), or liens or encumbrances for
labor or materials, arising out of or in any way connected with
such matters. THE FOREGOING RELEASE AND INDEMNIFICATION SHALL
APPLY WHETHER OR NOT SUCH CLAIMS, ACTIONS, CAUSES OF ACTION,
LIABILITIES, DAMAGES, LOSSES, COSTS OR EXPENSES ARISE OUT OF (i)
NEGLIGENCE (INCLUDING SOLE NEGLIGENCE, SINGLE NEGLIGENCE,
CONCURRENT NEGLIGENCE, ACTIVE OR PASSIVE NEGLIGENCE, BUT EXPRESSLY
NOT INCLUDING GROSS NEGLIGENCE) OF ANY INDEMNIFIED PARTY, OR (ii)
STRICT LIABILITY.
(b) INTERIM OPERATION. There are no currently producing wells on
the Properties and no drilling operations are being conducted on the
Properties by Seller or another working interest owner which Schedule may
be amended by Seller up to the Closing Date, except as provided in
Schedule 5(b). Seller is not obligated to initiate or conduct or bear the
cost, liability or expense of any operations on or proposals relating to
the Properties on or after the Agreement Date. Seller will give Buyer
written notice of any proposal made by a third party between the
Agreement Date and the Closing under any of the agreements referred to in
Section 1of this Agreement. Buyer may elect to accept said proposal, at
Buyer's sole cost, liability, risk and expense, by notifying Seller in
writing at least 5 days before Seller must give the third party notice of
whether or not it accepts such proposal. If Buyer does not accept the
proposal within the time provided above, then Seller shall have the right
but not the obligation to accept such proposal and any and all right,
title and interest that Seller has the right to acquire by virtue of the
acceptance of the proposal shall be excluded from the Properties, to the
extent of the depths drilled pursuant to the accepted proposal. Seller
will not sell or otherwise dispose of any portion of the Oil and Gas
Properties.
(c) PREFERENTIAL RIGHTS AND CONSENTS. Seller will assist Buyer in
identifying, with respect to all material, (i) all preferential rights to
purchase ("PREFERENTIAL RIGHTS") and requirements that consents to
assignment ("CONSENTS") be obtained which would be applicable to the
transactions contemplated hereby and (ii) the names and addresses of
parties holding such rights; in attempting to assist in identifying such
Preferential Rights and Consents, and the names and addresses of such
parties holding the same, Seller shall in no event be obligated to go
beyond its own records. Seller is presently aware that the Oil and Gas
Properties are subject to the Preferential Rights and Consents under the
Agreements listed on Exhibit A-3. As identified and requested by Buyer,
Seller will assist in preparing request, in accordance with the documents
creating such rights, for the execution of Consents and/or waivers of
Preferential Rights. Seller shall have no obligation other than to so
attempt to assist in identifying such Preferential Rights or Consents and
to assist in requesting such execution of Consents and/or waivers of
Preferential Rights (including, without limitation, Seller shall have no
obligation to assure that such Consents or waivers of Preferential Rights
are obtained). Buyer shall indemnify and hold Seller (and its Members and
its and their affiliates and the respective officers, directors,
employees, attorneys, contractors and agents of such parties) harmless
from and against all claims, actions, causes of action, liabilities,
damages, losses, costs or expenses (including, without limitation, court
costs and attorney's fees) whatsoever that arise out of the failure to
obtain Consents or waivers of Preferential Rights with respect to any
transfer by Seller to Buyer of any part of the Properties and with
respect to any subsequent transfers WHETHER OR NOT SUCH CLAIMS, ACTIONS,
CAUSES OF ACTION, LIABILITIES, DAMAGES, LOSSES, COSTS OR EXPENSES ARISE
OUT OF NEGLIGENCE (INCLUDING SOLE NEGLIGENCE, SINGLE NEGLIGENCE,
CONCURRENT NEGLIGENCE, ACTIVE OR PASSIVE NEGLIGENCE, BUT EXPRESSLY NOT
INCLUDING GROSS NEGLIGENCE) OF ANY INDEMNIFIED PARTY. If a party from
whom a waiver of a Preferential Right is requested refuses to give such
waiver, Seller will tender to such party the required interest in the
Property, and to the extent that such Preferential Right is exercised by
such party, and such interest
5
<PAGE> 6
in such Property is actually sold to such party so exercising such right,
such interest in such Property will be excluded from the transaction
contemplated hereby.
(d) EARNED INTEREST. For ninety days (90) after Closing, when and
if requested by Buyer, Seller shall notify any holder of Earned Interests
that Buyer has contracted to purchase the Earned Interests and after the
Closing shall request that the holder of the Earned Interests assign the
Earned Interests to Buyer as requested by Buyer. In the event any Earned
Interests are assigned to Seller after Closing, Seller shall promptly
assign such Earned Interest to Buyer.
6. DUE DILIGENCE REVIEWS.
(a) REVIEW BY BUYER. Buyer may conduct, at its sole cost, such
title examination or investigation, and other examinations and
investigations, as it may in its sole discretion choose to conduct with
respect to the Properties in order to determine whether Preferential
Rights or Consents exist or other problems exist which would materially
negatively impact the value of the Properties (a "Defect"). Should, as a
result of such examinations and investigations, or otherwise, one or more
matters come to Buyer's attention which would constitute a Defect, and
should there be one or more of such Defects which Buyer is unwilling to
waive and close the transaction contemplated hereby notwithstanding the
fact that such Defects exist, Buyer shall notify Seller in writing of
such Defects as soon as the same are identified by Buyer, but in no event
no later than December 21, 1998 at 5:00 p.m. (such Defects of which Buyer
so provides notice are herein called "Asserted Defects"). Such
notification shall include, for each Asserted Defect, (i) a description
of the Asserted Defect and the specific Property to which it relates and
all supporting documentation reasonably necessary to fully describe the
basis for the Defect. All Defects with respect to which Buyer fails to so
give Seller notice will be deemed waived for all purposes. All access to
Sellers records and the Properties in connection with such due diligence
shall be subject and pursuant to Section 5(a) (including, without
limitation, the exculpation and indemnification provisions contained in
Section 5(a)(iii)).
(b) The term Defect shall also include the following:
(i) PRODUCTION SALES CONTRACTS. An Oil and Gas Property is
subject to a production sales on transport contract to which Seller
is a signatory party (other than the Pinnacle Contract).
(ii) A Mortgage or other lien or encumbrances created by
Seller and not one of the Agreements referenced in Section 1 above.
7. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER. The obligations of
Buyer under this Agreement are subject to each of the following
conditions being met:
(a) REPRESENTATIONS TRUE AND CORRECT. Each and every representation
of Seller under this Agreement shall be true and accurate in all material
respects as of the date when made and shall be deemed to have been made
again at and as of the time of Closing and shall at and as of such time
of Closing be true and accurate in all material respects except as to
changes specifically contemplated by this Agreement or consented to by
Buyer.
(b) COMPLIANCE WITH COVENANTS AND AGREEMENTS. Seller shall have
performed and complied in all material respects with (or compliance
therewith shall have been waived by Buyer) each and every covenant and
agreement required by this Agreement to be performed or complied with by
Seller prior to or at the Closing.
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<PAGE> 7
(c) LITIGATION. No suit, action or other proceedings shall, on the
date of Closing, be pending or threatened before any court or
governmental agency seeking to restrain, prohibit, or obtain material
damages or other material relief in connection with the consummation of
the transactions contemplated by this Agreement.
(d) DEFECT. No Defect exists which is not waived by Buyer or cured
as of the Closing Date.
If any such condition on the obligations of Buyer under this Agreement is not
met as of the Closing Date, or in the event the Closing does not occur on or
before the Closing Date, and (in either case) Buyer is not in material breach of
its obligations hereunder, this Agreement may, at the option of Buyer, be
terminated. In the event such a termination by Buyer occurs the parties shall
have no further obligations to one another hereunder (other than the obligations
under Sections 5(a)(iii) and 13 hereof all of which will survive such
termination).
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER. The obligations of
Seller under this Agreement are subject to the each of the following conditions
being met:
(a) REPRESENTATIONS TRUE AND CORRECT. Each and every representation
of Buyer under this Agreement shall be true and accurate in all material
respects as of the date when made and shall be deemed to have been made
again at and as of the time of Closing and shall at and as of such time
of Closing be true and accurate in all material respects except as to
changes specifically contemplated by this Agreement or consented to by
Seller.
(b) COMPLIANCE WITH COVENANTS AND AGREEMENTS. Buyer shall have
performed and complied in all material respects with (or compliance
therewith shall have been waived by Seller) each and every covenant and
agreement required by this Agreement to be performed or complied with by
Buyer prior to or at the Closing.
(c) LITIGATION. No suit, action or other proceedings shall, on the
date of Closing, be pending or threatened before any court or
governmental agency seeking to restrain, prohibit, or obtain material
damages or other material relief in connection with the consummation of
the transactions contemplated by this Agreement.
(d) DEFECT. No Defect exists which is not waived by Buyer or cured
as of the Closing Date..
If any such condition on the obligations of Seller under this Agreement is not
met as of the Closing Date, or in the event the Closing does not occur on or
before the Closing Date, and (in either case) Seller is not in material breach
of its obligations hereunder in the absence of Buyer being in breach of its
obligations hereunder, this Agreement may, at the option of Seller, be
terminated, in which case the parties shall have no further obligations to one
another hereunder (other than the obligations under Sections 5(a)(iii) and 12
hereof, all of which will survive such termination).
9. CLOSING.
(a) ACTIONS AT CLOSING. The closing (herein called the "CLOSING")
of the transaction contemplated hereby shall take place in
the offices of MB Exploration, at 12222 Merit Drive, Dallas,
Texas, on December 31, 1998, at 10:00 a.m. local time at the
location of such offices, or at such other date and time as
the Buyer and Seller may mutually agree upon (such date and
time, as changed pursuant to this section, being herein
called the "CLOSING DATE"). At the Closing:
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(i) DELIVERY OF CONVEYANCE. Seller shall execute, acknowledge
and deliver to Buyer a conveyance of the Properties (the
"CONVEYANCE"), in the form attached hereto as Schedule I (and with
Exhibit A-1 and A-2 hereto, being attached thereto), effective 7
o'clock a.m., local time at the locations of the Closing, on or
before December 31, 1998 (herein called the "EFFECTIVE DATE").
(ii) TURN OVER POSSESSION. Seller shall, to the extent
Seller can do so, turn over possession of the Properties.
(iii) PAYMENT TO SELLER. Buyer shall deliver to the Seller,
by wire transfer of immediately available funds to an account
designated by Seller in a bank located in the United States, an
amount equal to the Purchase Price.
(iv) Buyer and Seller shall execute and deliver to each other
(i) the AMI and Participation Agreement with a pro forma Operating
Agreement to be used in connection with the Participation Agreement
all attached hereto as Exhibit 9(a)(iv)-1, (ii) the Confidentiality
and Non-Compete Agreements attached hereto as Exhibit (a)(iv)-2.
(b) POST CLOSING ACTIONS.
(i) TRANSFER OF FILES. Seller will use reasonable efforts to
deliver to Buyer, at Buyer's expense, and within 45 days after
Closing, all of Seller's lease files, abstracts and title opinions
and other similar files and records which directly relate to the
Properties, other than those which Seller considers to be
proprietary or confidential to it or which Seller cannot provide to
Buyer without, in its opinion, breaching, or risking a breach of,
agreements with other parties, or waiving, or risking waiving,
legal privilege. Except for the 3D Seismic Data described in
Exhibit A-2, it is expressly understood that Buyer is not
acquiring, and Seller is not obligated to transfer to Buyer, any
seismic data, geological or geophysical data, or other similar
data, or any interpretations thereof or other data or records
related thereto because of certain interests and rights retained by
Seller by certain agreements of even date. Seller may, at its
election, make and retain copies of any or all such files. Buyer
shall preserve all files so delivered by Seller of a period of
seven (7) years following Closing and will allow Seller access
(including, without limitation, the right to make copies at
Seller's expense) to such files at all reasonable times.
10. CERTAIN ACCOUNTING ADJUSTMENTS.
(a) ADJUSTMENTS FOR EXPENSES. Appropriate adjustments shall be made
between Buyer and Seller so that on or after the Agreement Date (i) any
delay rentals and taxes shall be paid by the party owning the Property at
the time payment is due, (ii) except as provided in Section 5(b), all
costs and expenses of any operation or proposals relating to the Property
shall be borne by Buyer, (iii) all costs and expenses of any operation or
proposal relating to the Property before the Agreement Date shall be
borne by Seller and (iv) no consideration shall be given to the local,
state or federal income tax liabilities of any party.
(b) INITIAL ADJUSTMENT AT CLOSING. At least 5 days before the
Closing Date, Seller shall provide to Buyer a statement showing its
computations of the amount of the adjustments provided for in subsection
(a) above based on amounts which prior to such time have actually been
paid or received by Seller. Buyer and Seller shall attempt to agree upon
such adjustments prior to Closing, provided that if agreement is not
reached, Seller's computation shall be used at Closing, subject to
further adjustment under subsection (c) below. If the amount of
adjustments so determined which would
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<PAGE> 9
result in a credit to Buyer exceeds the amount of adjustments so
determined which would result in a credit to Seller, Buyer shall, as
provided in Section 9 above, receive a credit at Closing for the amount
of such excess, and if the converse is true, then, as provided in Section
9 above, the amount to be paid by Buyer to Seller at Closing shall be
increased by the amount of such excess.
(c) ADJUSTMENT POST CLOSING. On or before 30 days after Closing,
Buyer and Seller shall review any additional information which may then
be available pertaining to the adjustments provided for in subsection (a)
above, shall determine if any additional adjustments should be made
beyond those made at Closing (whether the same be made to account for
expenses or revenues not considered in making the adjustments made at
Closing, or to correct errors made in the adjustments made at Closing),
and shall make any such adjustments by appropriate payments from Seller
to Buyer or from Buyer to Seller.
(d) NO FURTHER ADJUSTMENTS. Following the adjustments under
subsection(c) above, no further adjustments shall be made under this
Section 11. Should any expenses with regard to the Properties be charged
to Seller or Buyer after the earlier of (i) the conclusion of such
adjustments under subsection (c) or (ii) 30 days after Closing, the same
shall be borne by Buyer, regardless of the periods to which the same
relate, and any bills received by Seller will be forwarded to Buyer.
11. ASSUMPTION AND INDEMNIFICATION. Buyer shall, on the date of Closing,
agree (and, upon the delivery to Buyer of the Conveyance, shall be deemed to
have agreed), subject to the adjustments provided for in Sections 10(b) and (c),
(a) to assume, and to timely pay and perform, all duties, obligations and
liabilities relating to the ownership and/or operation of the Properties
regardless of whether the same accrued or otherwise arose before or after the
Effective Date (including, without limitation, those arising under the contracts
and agreements described in Section 1(b) above), and (b) to indemnify and hold
Seller (and its Members and its and their affiliates, and the respective
directors, officers, employees, attorneys, contractors and agents of such
parties) harmless from and against any and all claims, actions, causes of
action, liabilities, damages, losses, costs or expenses (including, without
limitation, court costs and attorneys' fees) of any kind or character arising
out of or otherwise relating to the ownership and/or operation of the Properties
regardless of whether the same accrued or otherwise arose before or after the
Effective Date. In connection with (but not in limitation of) the foregoing, it
is specifically understood and agreed that such duties, obligations and
liabilities include all matters arising out of the condition of the Properties
on the Effective Date and to comply with applicable environmental laws, rules,
regulations and orders, including conducting any remediation activities which
may be required on or otherwise in connection with activities on the
Properties), regardless of whether such condition or the events giving rise to
such condition arose or occurred before or after the Effective Date, and the
assumptions and indemnifications by Buyer provided for in the first sentence of
this section shall expressly cover and include such matters. THE FOREGOING
ASSUMPTIONS AND INDEMNIFICATIONS SHALL APPLY WHETHER OR NOT SUCH DUTIES,
OBLIGATIONS OR LIABILITIES, OR SUCH CLAIMS, ACTIONS, CAUSES OF ACTION,
LIABILITIES, DAMAGES, LOSSES, COSTS OR EXPENSES ARISE OUT OF (I) NEGLIGENCE
(INCLUDING SOLE NEGLIGENCE, SINGLE NEGLIGENCE, CONCURRENT NEGLIGENCE, ACTIVE OR
PASSIVE NEGLIGENCE, BUT EXPRESSLY NOT INCLUDING GROSS NEGLIGENCE) OF ANY
INDEMNIFIED PARTY, OR (II) STRICT LIABILITY.
12. NO COMMISSIONS OWED. Seller agrees to indemnify and hold Buyer (and
its affiliates, and the respective officers, directors, employees, attorneys,
contractors and agents of such parties) harmless from and against any and all
claims, actions, causes of action, liabilities, damages, losses, costs or
expenses (including, without limitation, court costs and attorneys fees) of any
kind or character arising out of or resulting from any agreement, arrangement or
understanding alleged to have been made by, or on behalf of, Seller with any
broker or finder in connection with this Agreement or the transaction
contemplated hereby. Buyer agrees to indemnify and hold Seller (and its Members
and its and their affiliates and the respective officers, directors, employees,
attorneys, contractors and agents of such
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<PAGE> 10
parties) harmless from and against any and all claims, actions, causes of
action, liabilities, damages, losses, costs or expenses (including, without
limitation, court costs and attorneys fees) of any kind or character arising out
of or resulting from any agreement, arrangement or understanding alleged to have
been made by, or on behalf of, Buyer with any broker or finder in connection
with this Agreement or the transaction contemplated hereby.
13. NOTICES. All notices and other communications required under this
Agreement shall (unless otherwise specifically provided herein) be in writing
and be delivered personally, by recognized commercial courier or delivery
service which provides a receipt, by telecopier (with receipt acknowledged), or
by registered or certified mail (postage prepaid), at the following addresses:
If to Buyer: Power Exploration, Inc.
Attn: Mr. Guy Pyron
617 Chase
Tyler, Texas 75701
Fax: (903) 561-8331
If to Seller: MB Exploration, LLC
Attn: Mr. Matthew Bob
1222 Merit Drive, #320
Dallas, Texas 75251
(972) 726-8288
and shall be considered delivered on the date of receipt. Either Buyer or Seller
may specify as its proper address any other post office address within the
continental limits of the United States by giving notice to the other party, in
the manner provided in this Section, at least ten (10) days prior to the
effective date of such change of address.
14. SURVIVAL OF PROVISIONS. All representations and warranties made herein
by Buyer and Seller shall be continuing and shall be true and correct on and as
of the date of Closing with the same force and effect as if made at that time
(and shall inure to the benefit of the respective successors and assigns of
Buyer and Seller, and all of such representations and warranties shall survive
the Closing and the delivery of the Conveyance. The obligations of the parties
under Section 9 (to the extent the same are, by mutual agreement, not performed
at Closing), and Sections 10, 11, 12, 13, 14 and 15 shall (subject to any
limitations set forth therein) also survive the Closing and the delivery of the
Conveyance.
15. MISCELLANEOUS MATTERS.
(a) FURTHER ASSURANCES. After the Closing, Seller shall execute and
deliver, and shall otherwise cause to be executed and delivered, from time
to time, such further instruments, notices and other documents, and do
such other and further acts and things, as may be reasonably necessary to
more fully and effectively grant, convey and assign the Properties to
Buyer.
(b) DECEPTIVE TRADE PRACTICES WAIVER. TO THE EXTENT APPLICABLE TO
THE TRANSACTION CONTEMPLATED HEREBY OR ANY PORTION THEREOF, BUYER WAIVES
BUYER'S RIGHTS UNDER THE PROVISIONS OF THE TEXAS DECEPTIVE TRADE PRACTICES
- CONSUMER PROTECTION ACT, SECTIONS 17.41 ET. SEQ. OF THE TEXAS BUSINESS
AND COMMERCE CODE, A LAW THAT GIVES CONSUMERS SPECIAL RIGHTS AND
PROTECTIONS, AND ANY COMPARABLE ACT IN ANY OTHER STATE IN WHICH THE
PROPERTIES ARE LOCATED; BUYER STATES THAT, AFTER CONSULTATION WITH AN
ATTORNEY OF BUYER'S SELECTION, BUYER VOLUNTARILY CONSENTS TO THIS WAIVER.
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<PAGE> 11
(c) PARTIES BEAR OWN EXPENSES/NO SPECIAL DAMAGES. Each party shall
bear and pay all expenses (including, without limitation, legal fees)
incurred by it in connection with the transaction contemplated by this
Agreement. NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY NEITHER PARTY
SHALL HAVE ANY OBLIGATIONS WITH RESPECT TO THIS AGREEMENT, OR OTHERWISE IN
CONNECTION HEREWITH, FOR ANY SPECIAL, CONSEQUENTIAL OR PUNITIVE DAMAGES.
(d) NO SALES TAXES. No sales, transfer or similar tax will be
collected at Closing from Buyer in connection with this transaction. If,
however, this transaction is later deemed to be subject to sales, transfer
or similar tax, for any reason, Buyer agrees to be solely responsible, and
shall indemnify and hold Seller (and its affiliates, and its and their
directors, officers, employees, attorneys, contractors and agents)
harmless, for any and all sales, transfer or other similar taxes
(including related penalty, interest or legal costs) due by virtue of this
transaction on the Properties transferred pursuant hereto and the Buyer
shall remit such taxes at that time. Seller and Buyer agree to cooperate
with each other in demonstrating that the requirements for exemptions from
such taxes have been met.
(e) ENTIRE AGREEMENT. This Agreement contains the entire
understanding of the parties hereto with respect to subject matter hereof
and supersedes all prior agreements, understandings, negotiations, and
discussions among the parties with respect to such subject matter
(including, without limitation, Paragraph II, III and all other provisions
of that certain Letter of Intent dated October 30, 1998); provided that
any Confidentiality Agreement executed by Buyer and Seller, or any
representative of Seller, in connection with the transaction contemplated
hereby remains in full force and effect and is not superseded or modified
by this Agreement.
(f) AMENDMENTS, WAIVERS. This Agreement may be amended, modified,
supplemented, restated or discharged (and provisions hereof may be waived)
only by an instrument in writing signed by the party against whom
enforcement of the amendment, modification, supplement, restatement or
discharge (or waiver) is sought.
(g) CHOICE OF LAW. Without regard to principles of conflicts of law,
this Agreement shall be construed and enforced in accordance with and
governed by the laws of the state of Texas applicable to contracts made
and to be performed entirely within such state and the laws of the United
States of America, except that, to the extent that the law of a state in
which a portion of the Properties is located (or which is otherwise
applicable to a portion of the Properties) necessary governs, the law of
such state shall apply as to that portion of the property located in (or
otherwise subject to the laws of) such state.
(h) HEADINGS, TIME OF ESSENCE, ETC. The descriptive headings
contained in this Agreement are for convenience only and shall not control
or affect the meaning or construction of any provision of this Agreement.
Within this Agreement words of any gender shall be held and construed to
cover any other gender, and words in the singular shall be held and
construed to cover the plural, unless the context otherwise requires. Time
is of the essence in this Agreement.
(i) NO ASSIGNMENT. Neither party shall have the right to assign its
rights under this Agreement, without the prior written consent of the
other party first having been obtained.
(j) SUCCESSORS AND ASSIGNS. Subject to the limitation on assignment
contained in subsection (j) above, the Agreement shall be binding on and
inure to the benefit of the parties hereto and their respective successors
and assigns.
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(k) NO PRESS RELEASES. Except as may be required under applicable
law, prior to Closing neither party shall make any public announcement
with respect to the transaction contemplated hereby without the consent of
the other party.
(l) COUNTERPART EXECUTION. This Agreement may be executed in
counterparts, all of which are identical and all of which constitute one
and the same instrument. It shall not be necessary for Buyer and Seller to
sign the same counterpart.
IN WITNESS WHEREOF, this Agreement is executed by the parties hereto on
the date set forth above.
M B EXPLORATION, L.L.C.
By:
-----------------------
Name:
---------------------
Title:
--------------------
POWER EXPLORATION, INC.
By:
-----------------------
Name:
---------------------
Title:
--------------------
12
<PAGE> 1
EX-10.16 AMENDMENT TO SALE AND PURCHASE AGREEMENT WITH MB EXPLORATION, LLC,
DATED DECEMBER 15, 1998
AMENDMENT TO SALE AND PURCHASE AGREEMENT
This is an Amendment to Sale and Purchase Agreement ("Agreement"),
dated December 15, 1998, by and between MB EXPLORATION, L.L.C., ("Seller") and
POWER EXPLORATION, INC., ("Buyer").
WHEREAS, Buyer has given Seller written notice dated December 21, 1998,
alleging that certain "Defects," as defined in the Agreement exist with respect
to the Properties.
WHEREAS, the parties desire to amend the terms of payment of the
Purchase Price as defined in the Agreement.
NOW, THEREFORE, Seller and Buyer agree as follows:
1. Article 2 Purchase Price is amended to provide that such is
payable as follows:
a. $ 50,000.00 cash at closing.
b. The balance of $300,000.00 represented by a promissory note
("Note") in a form satisfactory to Seller, that shall be
executed by Buyer and payable to Seller. The Note shall be
payable in cash on or before January 31, 1999.
Buyer agrees to execute and deliver a Deed of Trust, Security
Agreement and Financing Statement (with Assignment of Runs) to
Seller at Closing, granting a lien and security interest in the
Properties to secure the payment of the Note in full, when due.
Said Deed of Trust shall be substantially in the form of Exhibit 1
attached hereto, together with such changes, if any, as Seller may
reasonably require and Seller shall have the right to designate a
Trustee that is different from the person designated in said
Exhibit 1.
Additionally and where applicable, all assignments, transfers, or
documents of conveyance of the Properties will be further
documented to reflect the Seller with the appropriate Security
Interest or Mortgage Lien in the Properties as further security
for payment of the Note. Upon payment of the balance of the
Purchase Price, any documents of security or encumbrance held by
Seller will be released.
2. Buyer hereby waives any Defects that exist with respect to the
Properties and agrees to consummate the transaction contemplated by the
Agreement.
3. Section 15 (a) of the Agreement of Sale and Purchase is hereby
amended by adding the following sentence to the end of the paragraph:
After the Closing, Buyer shall execute and deliver to Seller, and shall
otherwise cause to be executed and delivered, from time to time, such further
instruments, notices and other documents, and do such other and further acts and
things, as may be reasonably necessary to more fully and effectively reserve
and/or vest in Seller the properties, rights and interests expressly excepted
and excluded from this Agreement and reserved unto Seller.
MB EXPLORATION, L.L.C. POWER EXPLORATION, INC.
By By
---------------------------- ---------------------------
Matthew R. Bob Brent Rickels
President Controller
<PAGE> 1
EX-99.3 GLOSSARY OF SELECTED OIL & GAS TERMS
The following are abbreviations and definitions of certain terms
commonly used in the oil and natural gas industry and this Prospectus.
"AMI." Area of Mutual Interest. A federal income tax term used in
allocating geophysical and geological costs to certain properties. A
large-scale geophysical survey may indicate several areas of interest.
The cost of the survey must be allocated to each area of interest, and
when leases are obtained therein, the geophysical costs become part of
the basis of the property.
"Bbl." One stock tank barrel, or 42 U.S. gallons liquid volume, used
herein in reference to crude oil or other liquid hydrocarbons.
"Boe." Barrel oil equivalents.
"COMPLETED WELL." The completion of a well or a completed well refers
to the installation of permanent equipment for the production of oil or
natural gas, or in the case of a dry hole, the reporting of abandonment
to the appropriate agency.
"DEVELOPED ACREAGE." Acreage spaced or assignable to productive wells.
"DEVELOPMENT WELL." A well drilled within the proven boundaries of an
oil or natural gas reservoir with the intention of completing the
strategraphic horizon known to be productive.
"DRY HOLE." An exploratory or development well found to be incapable of
producing either oil and natural gas in sufficient economic quantities
to justify completion of a well.
"EXPLORATORY WELL." A well drilled within no proven boundaries of an
oil or natural gas reservoir.
"GROSS ACRE." An acre in which a working interest is owned.
"GROSS WELL(S)." 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
working interests are owned.
"INFILL DRILLING." Drilling of a well between known producing wells to
better exploit the reservoir.
"Mcf." One thousand cubic feet of natural gas.
"NET ACRE(S)." 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 percentages thereof.
"NET WELL(S)." A net well is deemed to exist when the sum of the
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 percentages
thereof.
"OVERRIDING ROYALTY INTEREST." An interest in an oil and/or natural gas
property entitling the owner to a share of oil and natural gas
production free of costs of production.
"PRESENT VALUE OF ESTIMATED FUTURE NET REVENUES." The present value of
estimated future net revenues is an estimate of future net revenues
from a property at its acquisition date, at December 31, 1997, or as
otherwise indicated, after deducting production and ad valorem taxes,
future capital costs and operating expenses, but before deducting
federal income taxes. The future net revenues have been discounted at
an annual rate of 10% to determine their "present value." The present
value is shown to indicate the effect of time on the value of the net
revenue stream and should not be construed as being the fair market
value of the properties. Estimates have been made using constant oil
and natural gas
<PAGE> 2
prices and operating costs at the acquisition date, at December 31,
1997, or as otherwise indicated. POWER believes that the present value
of estimated future net revenues before income taxes, while not in
accordance with generally accepted accounting principles, is an
important financial measure used by investors and independent oil and
natural gas producers for evaluating the relative significance of oil
and natural gas properties and acquisitions.
"PRODUCING WELL," "PRODUCTION WELL" OR "PRODUCTIVE WELL." A well that
is producing oil or natural gas or that is capable of production.
"PROVED BEHIND-PIPE." Proved reserves that are currently behind the
pipe of an existing well that are expected to be productive due to the
wells log characteristics and the analogous production of other wells
in the immediate vicinity.
"PROVED DEVELOPED RESERVES." Proved developed reserves are those
quantities of oil, natural gas and NGLs that, upon analysis of
geological and engineering data, are expected with reasonable certainty
to be recoverable in the future from known oil and natural gas
reservoirs under existing economic and operating conditions. This
classification includes: (a) proved developed producing reserves, which
are those expected to be recovered from currently producing zones under
continuation of present operating methods; and (b) proved developed
nonproducing reserves, which consist of (i) reserves from wells that
have been completed and tested but are not yet producing due to lack of
market or minor completion problems that are expected to be corrected,
and (ii) reserves currently behind the pipe in existing wells which are
expected to be productive due to both the well log characteristics and
analogous production in the immediate vicinity of the well.
"PROVED NONPRODUCING RESERVES." Proved nonproducing reserves include
proved behind-pipe reserves and proved undeveloped reserves.
"PROVED RESERVES." The estimated quantities of crude oil, natural gas
and NGLs which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known
reservoirs under existing economic and operating conditions.
"PROVED UNDEVELOPED RESERVES." Proved reserves that may be expected to
be recovered from existing wells that will require a relatively major
expenditure to develop or from undrilled acreage adjacent to productive
units that are reasonably certain of production when drilled.
"UNDEVELOPED ACREAGE." 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 natural gas regardless of whether such
acreage contains proved reserves. in connection herewith.
"WORKING INTEREST." The operating interest that gives the owner the
right to drill, produce and conduct operating activities on the
property and to a share of production, subject to all royalties,
overriding royalties and other burdens and to all costs of exploration,
development and operations and all risks.
