SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.1)
Filed by the Registrant [X]
Filed by a Party other than the Registrant
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, For Use of the Commission
Only (as Permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Materials Pursuant to Rule 14a-11(c) or Rule 14a-12
ENERGY PRODUCTION COMPANY
-------------------------
Name of Registrant as Specified in its Charter
Name of Person(s) Filing Proxy Statement, if Other than the Registrant
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)and 0-11.
(1) Title of each class of securities to which transaction applies: Common
Stock, $.01 Par Value.
(2) Aggregate number of securities to which transaction applies:
30,961,778.
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed: October 17, 1997.
<PAGE>
ENERGY PRODUCTION COMPANY
1703 Edelweiss Drive
Cedar Park, Texas 78613
November 10, 1997
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders
(the "Meeting") of Energy Production Company, a Colorado corporation (the
"Company") to be held on Wednesday, December 17, 1997 at 9:00 a.m., central
standard time, at the principal offices of the Company located at 1703 Edelweiss
Drive, Cedar Park, Texas 78613. The Board of Directors of the Company and
management look forward to greeting personally those shareholders able to attend
the Meeting.
At the Meeting, the shareholders will be asked to consider and vote
upon: (i) a proposal to elect three (3) nominees as directors of the Company to
serve until the next Annual Meeting of Shareholders of the Company to be held in
1998; (ii) a proposal to amend the Articles of Incorporation to change the name
of the Company to "FieldPoint Petroleum Corporation"; (iii) a proposal to
approve the 75-to-1 reverse stock split (the "Stock Split") of the 30,961,778
shares of common stock ("Common Stock") of the Company issued and outstanding;
(iv) a proposal to approve the acquisition by the Company of all of the issued
and outstanding shares of common stock of Bass Petroleum, Inc., a Texas
corporation ("BPI"), in exchange for Common Stock issued to the shareholders of
BPI (the "Reverse Acquisition"); (v) a proposal to ratify the selection of Hein
& Associates, L.L.P. as the Company's independent auditors for the current
fiscal year ending December 31, 1997; and (vi) any other business as may
properly come before the meeting and any adjournment thereof (collectively, the
"Proposals"). The Proposals are fully set forth in the accompanying Proxy
Statement which you are urged to read thoroughly. For the reasons set forth in
the Proxy Statement, your Board of Directors recommends a vote FOR all nominees
as directors and IN FAVOR of all Proposals.
In May, 1997, the controlling shareholder of the Company, Robert
Watson, Inc., sold 16,728,000 shares of Common Stock to BPI in consideration of
the cash payment of $45,000 by BPI. To date, BPI owns an aggregate of 16,728,000
shares of Common Stock, constituting approximately 54% of all of the issued and
outstanding shares of Common Stock. After taking into effect the Stock Split and
the Reverse Acquisition, BPI will own approximately 5.1% of all of the issued
and outstanding shares of Common Stock and the BPI shareholders will own
approximately 90.6% of all of the issued and outstanding shares of Common Stock.
All of the shares of Common Stock held by BPI are "restricted securities,"
subject to Rule 144 of the Securities Act of 1933, as amended (the "1933 Act").
Under Rule 144, unregistered resales of restricted Common Stock cannot be made
until such shares of Common Stock have been held for one year from the later of
their acquisition from the Company or an affiliate of the Company. Thereafter,
shares of Common Stock may be resold without registration subject to Rule 144's
volume limitation, aggregation, broker transaction, notice filing requirements,
and requirements concerning publicly available information about the Company.
As of the date hereof, the officers and directors of the Company, based
on their positions as shareholders and/or officers and directors of BPI,
beneficially own an aggregate of 16,728,000 shares of Company Common Stock,
constituting 54% of the total issued and outstanding number of shares of Common
Stock. The officers and directors of the Company intend to vote such shares for
all the director nominees set forth in the Proxy Statement and in favor of all
the Proposals, thus assuring the election of all nominees and approval of all
the Proposals.
With respect to the Reverse Acquisition, the Company intends to acquire
all the issued and outstanding shares of capital stock of BPI, 58.3% of which is
owned by Mr. Ray Reaves, a director and the President and Chief Executive
Officer of the Company. A disinterested Board of Directors of the Company will
not review such transaction and no independent determination has been made as to
the fairness or reasonableness of such transaction. However, the Company
believes that such transaction is fair to the Company in accordance with the
applicable provisions of the Colorado Business Corporation Act. The Company has
not adopted and does not intend to adopt any guidelines for resolving any
potential conflicts of interest which arise with respect to such transaction.
However, all future related-party transaction shall be approved by a majority of
disinterested, independent members of the Company's Board of Directors, if
available.
It is important that your shares be voted at the Meeting. Whether or
not you plan to attend in person, please complete, date and sign the enclosed
Proxy and return such Proxy as promptly as possible in the accompanying postage
prepaid envelope. If you do attend the Meeting and wish to vote your shares in
person, even after returning the Proxy, you still may do so.
Mailing of this Proxy Statement is expected to begin November 10, 1997.
Thank you for your cooperation.
Respectfully,
ENERGY PRODUCTION COMPANY
Ray D. Reaves
President and Chief Executive Officer
<PAGE>
ENERGY PRODUCTION COMPANY
1703 Edelweiss Drive
Cedar Park, Texas 78613
===============================================================================
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held December 17, 1997
===============================================================================
TO OUR SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of Energy
Production Company will be held on Wednesday, December 17, 1997 at 1703
Edelweiss Drive, Cedar Park, Texas 78613, to consider and vote on the following
matters as described in this notice and the accompanying Proxy Statement.
1. To elect three directors to hold office until the next annual meeting of
Shareholders or until their successors have been duly elected and
qualified.
2. To approve the change of the name of the Company to FieldPoint Petroleum
Corporation.
3. To approve the 75 to 1 reverse stock split of the 30,961,778 shares of
common stock of the Company issued and outstanding.
4. To approve the acquisition by the Company of all of the outstanding shares
of Bass Petroleum, Inc.
5. To ratify the selection of Hein & Associates, L.L.P. as the Company's
independent auditors for the current fiscal year ending December 31, 1997.
6. To transact such other business as may properly come before the Meeting or
any adjournment thereof.
The Board of Directors has fixed the close of business on November 7, 1997 as
the record date for determination of Shareholders entitled to vote at the
Meeting or any adjournment thereof, and only Shareholders of record at the close
of business on that date will be entitled to vote. At the Record Date,
30,961,778 shares of common stock were issued and outstanding. A list of
Shareholders entitled to vote at the meeting will be available for inspection at
the principal executive offices of the Company located at 1703 Edelweiss Drive,
Cedar Park, Texas 78613.
The approximate date on which this Proxy Statement is first being mailed to
Shareholders is November 10, 1997. Shareholders who execute proxies may revoke
them at any time prior to their being exercised by providing written notice to
the Company by delivering another proxy bearing a later date any time prior to
the meeting. Mere attendance at the meeting will not revoke the proxy, but a
<PAGE>
Shareholder present at the meeting may revoke his or her proxy and vote in
person. Any duly executed proxy on which a vote is not indicated (except broker
non-votes expressly indicating a lack of discretionary authority to vote) will
be deemed a vote for the nominees and all Proposals. Abstentions and broker
non-votes will not be counted as votes either "for" or "against" any matters
coming before the meeting.
To assure representation at the Meeting, Shareholders are urged to sign and
return the enclosed proxy card as promptly as possible in the postage prepaid
envelope enclosed for that purpose. Any Shareholder attending the Meeting may
vote in person even if he or she previously returned a proxy.
By Order of the Board of Directors,
Kelly Latz
General Counsel and Secretary
<PAGE>
ENERGY PRODUCTION COMPANY
1703 Edelweiss Drive
Cedar Park, Texas 78613
PROXY STATEMENT FOR SPECIAL MEETING OF THE SHAREHOLDERS IN LIEU OF
ANNUAL MEETING TO BE HELD DECEMBER 17, 1997
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Energy Production Company (the "Company")
for use at the Special Meeting of Shareholders (the "Meeting") to be held at
1703 Edelweiss Drive, Cedar Park, Texas 78613 on Wednesday, December 17, 1997,
at 9:00 a.m., central daylight savings time, and at any adjournments thereof.
This Proxy Statement and the accompanying form of proxy are first being mailed
or given to shareholders of record on or about November 10, 1997. Any proxy may
be revoked by a shareholder at any time before its exercise by delivery of
written revocation or a subsequently dated proxy to the Secretary of the Company
or by voting in person at the Meeting.
The close of business on November 7, 1997, has been designated as the
record date for the determination of shareholders entitled to vote at the
Meeting, and at such date, there were outstanding and entitled to vote an
aggregate of 30,961,778 shares of common stock, $.01 par value per share, of the
Company ("Common Stock"). Holders of Common Stock are entitled to one vote per
share.
Votes Required
The holders of one-third of the shares of Common Stock issued and
outstanding and entitled to vote at the Meeting shall constitute a quorum for
the transaction of business at the Meeting. Shares of Common Stock present in
person or represented by proxy (including shares which abstain or do not vote
with respect to one or more of the matters presented for shareholder approval)
will be counted for purposes of determining whether a quorum exists at the
Meeting.
At the Meeting, Shareholders will be asked to consider and vote on
proposals to:
(i) approve Articles of Amendment to the Articles of Incorporation to
change the Company's name (the "Amendment");
(ii) approve the acquisition of all of the outstanding shares of common
stock of BPI (the "Reverse Acquisition") ;
(iii) elect the director nominees named herein;
(iv) approve the 75-to-1 reverse stock split of the 30,961,778 shares of
Common Stock issued and outstanding (the "Stock Split"); and
(v) ratify the selection of Hein & Associates, L.L.P. as the Company's
independent auditors for the current fiscal year.
The affirmative vote of the holders of a plurality of the shares of Common
Stock voting on the matter is required for the election of directors. Cumulative
voting in the election of directors is not permitted. The affirmative vote of
the holders of a majority of the shares of Common Stock voting on the matter is
required to approve the change of the Company's name; approve the 75-to-1
<PAGE>
reverse stock split of the 30,961,778 shares of Common Stock issued and
outstanding; and ratify the selection of Hein & Associates, L.L.P. as the
Company's independent auditors for the current fiscal year. The affirmative vote
of the holders of a majority of the issued and outstanding shares of Common
Stock is required to approve the acquisition of all of the outstanding shares of
common stock of BPI.
Shares which abstain from voting as to a particular matter, and shares held
in "street name" by brokers or nominees who indicate on their proxies that they
do not have discretionary authority to vote such shares as to a particular
matter, will not be voted in favor of such matter, and will also not be counted
as shares voting on such matter. Accordingly, abstentions and "broker non-votes"
will have no effect on the voting on a matter that requires the affirmative vote
of a plurality or a majority of the shares voting on such matter.
Shares Controlled by Management of Company
Through the relationship of the Board of Directors of the Company with BPI,
the Board of Directors of the Company controls 16,728,000 shares of Common
Stock, constituting approximately 54% of the total number of issued and
outstanding shares of Common Stock, which will be voted to elect all nominees
and in favor of all proposals described in this Proxy Statement, thus assuring
the election of all nominees and majority approval of all proposals.
Accordingly, the Company is not required under Colorado law to obtain the
approval of the other shareholders of the Company (collectively, the
"Non-management Shareholders"). All shareholders are being allowed to vote to
approve the transactions, however, because management deems the recent events
relating to the Company as material to the Company's ongoing and future business
operations and germane to all shareholders of the Company, including, without
limitation, the Non-management Shareholders. The Company desires to obtain the
Non-management Shareholders' views on the recent events relating to the Company
and, therefore, is soliciting consent from the Non-management Shareholders
through this Proxy Statement.
On a fully diluted basis, Mr. Ray D. Reaves ("Reaves"), a director nominee
of the Company, is the direct beneficial owner of 5,401,000 shares of BPI,
constituting approximately 60% of the total number of issued and outstanding
shares of common stock of BPI. In addition, Reaves serves as the President,
Chairman, Chief Executive Officer, and Chief Financial Officer of BPI. Without
taking into effect the Reverse Acquistion, BPI is currently the record and
beneficial holder of 16,728,000 shares of Common Stock, constituting
approximately 54% of the total number of issued and outstanding shares of Common
Stock of the Company. Accordingly, Reaves is deemed to have beneficial ownership
of approximately 54% of the total number of issued and outstanding shares of
Common Stock, as a result of his ownership of the capital stock of BPI and the
offices he serves with BPI.
Assuming the election of Reaves, Mr. Robert A. Manogue ("Manogue"), and Mr.
Roger D. Bryant ("Bryant") as directors of the Company, Reaves will serve as the
President, Chairman, Chief Executive Officer, and Chief Financial Officer of the
Company effective as of May 1997; and Manogue and Bryant will serve as Directors
of the Company effective July 1997. Prior thereto, Reaves served as the
President, Chairman, Chief Executive Officer, and Chief Financial Officer of BPI
from October 1989 to present, and currently serves as the President of
FieldPoint, Inc., a private investment firm. Since 1982, Manogue, the former
President of C. P. Clare International N.V. in Brussels, Belgium, a $50 million
<PAGE>
subsidiary of General Instruments Corporation, has been retired and has been
involved in house construction in Albuquerque, New Mexico under the name R. A.
Manogue Construction. Since November 1994, Bryant has been President of Canmax
Corporation, and from May 1993 to October 1994, Mr. Bryant was President of
Network Data Corporation. From January 1993 to May 1993, Bryant served as Senior
Vice President, Corporate Development, of Network Data Corporation. See "Item 2
- - Election of Directors." Except as otherwise disclosed herein, within the past
12 months, neither Reaves, Manogue, or Bryant has been a party to any contract,
arrangement, or understanding with any person with respect to any securities of
the Company, or, within the past 24 months, purchased or sold any securities of
the Company. Subject to the approval of the shareholders of the Company, the
Company intends to acquire all of the issued and outstanding shares of BPI
pursuant to the Reverse Acquisition. See "Item 1 - Approval and/or Ratification
of the Transactions - Proposal 2: Approval of the Reverse Acquisition."
As part of the Reverse Acquisition, all shares of BPI common stock will be
exchanged on a pro rata basis for 4,000,000 shares of Common Stock.
Additionally, all options to purchase BPI common stock will be converted into
options to purchase shares of Common Stock on the same terms and conditions as
the original options. As a result of the Reverse Acquisition, Reaves will
control approximately 61.2% of the issued and outstanding shares of Common Stock
and will have the option to purchase 200,000 shares of Common Stock; Manogue
will control approximately 8.3% of the issued and outstanding shares of Common
Stock and will have the option to purchase 100,000 shares of Common Stock; and
Bryant will have the option to purchase 100,000 shares of Common Stock. See
"Item 2 - Election of Directors - Certain Relationships and Related
Transactions" and "Beneficial Ownership of Common Stock."
Voting Proxies
All shares represented by properly executed proxies, unless such proxies
previously have been revoked, will be voted at the Meeting in accordance with
the directions on the proxies. IF NO DIRECTION IS INDICATED, THE SHARES WILL BE
VOTED TO ELECT THE THREE DIRECTORS AND IN FAVOR OF ALL OTHER PROPOSALS DESCRIBED
IN THIS PROXY STATEMENT. Any proxy may be revoked by a shareholder at any time
before its exercise by delivery of written revocation or a subsequently dated
proxy to the Secretary of the Company or by voting in person at the Meeting.
Annual Report
The Annual Report to Shareholders, covering the Company's fiscal year ended
December 31, 1996, including audited financial statements, is enclosed herewith.
The Annual Report to Shareholders does not form any part of the material for
solicitation of proxies.
The Annual Report is the Company's Form 10-KSB, as amended. The Company
will provide exhibits to its Annual Report on Form 10-KSB, as amended, upon
request to Mr. Ray D. Reaves, President, at 1703 Edelweiss Drive, Cedar Park,
Texas 78613 and upon payment of the reasonable expenses incurred by the Company
in furnishing such exhibits. The Company's Annual Report on Form 10-KSB, as
amended, is also on file at the Securities and Exchange Commission ("SEC"), 450
Fifth Street, N.W., Stop 4-5, Washington, D.C. 20549 and is filed electronically
and is available with all exhibits on the SEC's home page at www.sec.gov.
<PAGE>
Effects of the Transactions
In July 1997, the Board of Directors of the Company approved and authorized
the Amendment and the Reverse Acquisition (the Amendment and the Reverse
Acquisition are hereinafter collectively referred to as the "Transactions"). The
primary purpose for approving and authorizing each of the Transactions was to
permit the Company to establish and carry out a new business strategy which
includes acquiring companies which are involved in oil and gas exploration,
development and operations and which have existing revenues and producing
properties. Prior to July 1997, the Company had been a development stage company
with no material business operations. In connection with the approval and
authorization of each of the Transactions, each shareholder of the Company
should carefully consider the following risk factors, together with other
information contained in this Proxy Statement.
Dilution
Upon consummation of the Transactions, the shareholders of the Company will
incur immediate substantial dilution of their interest in the Company. See
"Beneficial Ownership of Common Stock - As of June 1, 1997 and After the
Transactions."
Conflicts of Interest
The management of the Company also has management responsibilities for the
daily affairs of BPI. Inherent conflicts of interest exist due to the interest
of Reaves, Manogue, and Bryant in and to the Company and BPI. Each of Reaves,
Manogue, and Bryant will receive rights in Common Stock as a result of the
Reverse Acquisition. The potential for pecuniary gain to management of the
Company and for the compromise of management's fiduciary duties exists in any
related-party Transaction. The Company's management and affiliates control a
majority of the shares of Common Stock. No independent determination has been
made as to the fairness and reasonableness of any related transaction and no
guidelines have been established to resolve any conflicts of interest. It should
be assumed that all agreements arranged between and among the Company and BPI
and each of their officers and directors are negotiated on an arm's length
basis. In future dealings between and among the Company and BPI, management of
the Company will seek to have potential conflicting matters approved by its
independent directors, if available, or seek advice of independent counsel.
Shares Eligible for Future Sale
The 16,728,000 shares of Common Stock held by BPI are "restricted
securities" subject to Rule 144 of the Securities Act of 1933, as amended (the
"1933 Act"). The 4,000,000 shares of restricted Common Stock to be issued by the
Company to BPI in the Reverse Acquisition have not been registered under the
1933 Act. Under Rule 144, unregistered resales of restricted Common stock cannot
be made until such shares of Common Stock have been held for one year from the
later of their acquisition from the Company or an affiliate of the Company. All
of such shares of Common Stock may be available for public sale by means of
ordinary brokerage transactions in the open market pursuant to Rule 144
promulgated under the 1933 Act, subject to certain limitations. Accordingly, the
availability for sale, as well as actual sales, of Common Stock by the current
shareholders of the Company may have a depressive effect upon prevailing market
prices of the Common Stock, and may adversely affect the terms at which the
Company may be able to obtain additional equity financing in the future.
<PAGE>
ITEM 1
APPROVAL AND/OR RATIFICATION OF THE TRANSACTIONS
General
In connection with the recent change in the Company's business strategy,
the Board of Directors of the Company hereby submits each of the following
Transactions for approval and/or ratification by the shareholders of the
Company. The transactions involve the Company and BPI and are discussed in
Proposals 1 and 2 following the general information regarding the Company and
BPI provided below.
Energy Production Company
The Company is an independent oil and gas company which was formed in March
1980 for the primary purpose of identifying, acquiring, revitalizing, and
enhancing the production of mature oil and natural gas fields located primarily
in the mid-continent and Rocky Mountain region. Since inception, the Company has
been a developmental stage company with no material operations that has devoted
substantially all of its efforts to establishing its business, and beginning in
December 1986, the Company sold all of its oil and gas assets and operations.
Since December 1986, the Company has not engaged in any oil and gas operations,
nor does the Company presently have the requisite personnel, equipment, or
finances to operate. Since the 1986 fiscal year, as a primary result of the
Company's lack of business operations, the Company has failed to file the
required reports and other filings required to be filed with the Securities and
Exchange Commission in accordance with the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). The Company intends to become current with regard
to its reporting requirements pursuant to the applicable provisions of the
Exchange Act, and through strategic acquisitions of identified oil and gas
properties, the Company believes that it will be able to commence business
operations although its planned operations have not yet commenced.
Recent Developments
In May 1997, the controlling shareholder of the Company sold 16,728,000
restricted shares of the Common Stock to BPI in consideration of the cash
payment of $45,000 by BPI. As of the date of this Proxy Statement, BPI owns an
aggregate of 16,728,000 restricted shares of Common Stock, constituting
approximately 54% of all of the issued and outstanding shares of Common Stock.
Business Strategy
The Company intends to enter into a plan of exchange with BPI as discussed
in Proposal 2 below to better enable the Company to carry out its business
strategy of acquiring producing oil and gas properties. Such acquisitions will
be based on an analysis of the properties' current cash flow and the Company's
ability to profit from the acquisition. The Company's acquisitions will include
leasehold and other working interests in exploration areas. The Company will
also seek to identify promising areas for the exploration of oil and gas through
the use of outside consultants and the expertise of the Company. This
identification will include collecting and analyzing geological and geophysical
data for exploration areas. Once promising properties are identified, the
Company will attempt to acquire the properties either for drilling oil and
natural gas wells, using independent contractors for drilling operations, or for
sale to third parties.
<PAGE>
Market for Oil and Gas
The demand for oil and gas is dependent upon a number of factors, including
the availability of other domestic production, crude oil imports, the proximity
and size of oil and gas pipelines in general, other transportation facilities,
the marketing of competitive fuels, and general fluctuations in the supply and
demand for oil and gas. The Company has not generated any revenues from the sale
of oil and gas during its past three fiscal years. The Company intends to sell
of all of its production to traditional industry purchasers, such as pipeline
and crude oil companies, who have facilities to transport the oil and gas from
the wellsite.
Competition
The oil and gas industry is highly competitive in all aspects. The Company
will be competing with major oil companies, numerous independent oil and gas
producers, individual proprietors, and investment programs. Many of these
competitors possess financial and personnel resources substantially in excess of
those which are available to the Company and may, therefore, be able to pay
greater amounts for desirable leases and define, evaluate, bid for and purchase
a greater number of potential producing prospects than the Company's own
resources permit. The Company's ability to generate resources will depend not
only on its ability to develop existing properties but also on its ability to
identify and acquire proven and unproven acreage and prospects for further
exploration.
Environmental Matters and Government Regulations
The Company's operations are subject to numerous federal, state and local
laws and regulations controlling the discharge of materials into the environment
or otherwise relating to the protection of the environment. Such matters have
not had a material effect on operations of the Company to date, but the Company
cannot predict whether such matters will have any material effect on its capital
expenditures, earnings or competitive position in the future.
The production and sale of crude oil and natural gas are currently subject
to extensive regulations of both federal and state authorities. At the federal
level, there are price regulations, windfall profits tax, and income tax laws.
At the state level, there are severance taxes, proration of production, spacing
of wells, prevention and clean-up of pollution and permits to drill and produce
oil and gas. Although compliance with their laws and regulations has not had a
material adverse effect on the Company's operations, the Company cannot predict
whether its future operations will be adversely effected thereby.
<PAGE>
Employees
As of the date hereof, the Company has one employee.
Properties
The Company owns no significant properties. The Company owned no oil and
gas properties during the 1994, 1995 and 1996 fiscal years. As of June 1, 1997,
the Company had no sales, no drilling activity, no operations, no production and
no delivery commitments.
The office space for the Company's executive offices at 1703 Edelweiss
Drive, Cedar Park, Texas 78613, is currently provided by the majority
shareholder at no cost to the Company.
Revenues Reported To Other Agencies
The Company filed no estimates of total, proved net oil or gas reserves and
included no such estimates in any reports to any federal authority or agency
since the beginning of the last fiscal year.
Production
During the last three fiscal years, the Company had no operations and no
production.
Productive Wells And Acreage
For the last three years, the Company had no productive wells or acreage.
Underdeveloped Acreage
For the last three fiscal years, the Company had no underdeveloped acreage.
Drilling Activity
The Company had no drilling activity in each of the last three fiscal
years.
Present Activities
As of June 1, 1997, the Company had no drilling, waterflood installation,
pressure maintenance operations, or other related operations.
Delivery Commitments
As of June 1, 1997, and for the last three years, the Company had no
delivery commitments.
<PAGE>
Legal Proceedings
The Company knows of no material litigation pending, threatening or
contemplated or unsatisfied judgments against it, or any other proceeding in
which the Company is a party. The Company knows of no material legal actions
pending or threatened or judgments entered against any officers or the Board of
Directors of the Company in their capacity as such.
Market for Common Equity and Related Shareholder Matters
The Common Stock was quoted in the NASDAQ System until February 22, 1984,
when the Common Stock was deleted from the NASDAQ System due to an insufficient
number of active market makers. Since that date, the Common Stock has
experienced only limited trading and its prices are quoted irregularly in the
National Quotation Bureau's "Pink Sheets". Information regarding bid prices and
closing bids has been obtained from the National Quotation Bureau. The following
quotations, where quotes were available, reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not necessarily represent actual
transactions.
FISCAL 1995 CLOSING BID
----------- -----------
HIGH LOW
----- -----
First Quarter (1) .0001 .0001
Second Quarter .0001 .0001
Third Quarter .0001 .0001
Fourth Quarter .0001 .0001
FISCAL 1996
-----------
HIGH LOW
---- -----
First Quarter .0001 .0001
Second Quarter .0001 .0001
Third Quarter .0001 .0001
Fourth Quarter .0001 .0001
FISCAL 1997
-----------
HIGH LOW
----- -----
First Quarter .0001 .0001
Second Quarter .0001 .0001
- ---------------------
(1) Closing Bid prices for the first quarter of 1995 were unavailable. The
prices provided are Bid Prices.
At June 1, 1997, the approximate number of holders of record of the
Company's Common Stock was 792. The Company has not paid any dividends on its
Common Stock and does not expect to do so in the foreseeable future.
Recent Sales Of Unregistered Securities
The Company has not sold any unregistered securities within the past three
years.
<PAGE>
Plan of Operation and Pre-Operating Activities
The Company's historical financial statements are not indicative of
anticipated revenues which may be obtained or expenditures which may be incurred
by the Company in future periods. The Company's plan of operation entails
acquiring BPI through the Reverse Acquisition (described in Proposal 2 below)
and thereby obtaining the benefit of BPI's management and existing oil and gas
exploration, development and operations business. The Company does not expect
pre-operating expenses to be significant. However, because the Company will
incur some expenditures without corresponding revenues prior to commencement of
oil and gas operations, the Company anticipates a net loss for the 1997 fiscal
year, and possibly for the 1998 fiscal year. Monthly pre-operating losses will
continue until the Company commences oil and gas operations.
The Company's business strategy is to acquire and develop producing crude
oil and natural gas properties in Texas, Wyoming, Oklahoma and other areas
identified by management. The Company intends to satisfy its operating costs
through the cash flow from the operations of BPI. The Company does not intend to
raise additional funds within the next twelve months to satisfy its cash
requirements.
Ray D. Reaves, Director, President, Chairman, and Chief Executive Officer
of the Company, is Chairman, Chief Executive Officer, Chief Financial Officer,
and Director of BPI and owns approximately 60% of the common stock of BPI. The
Reverse Acquisition is subject to any required approvals for the shareholders
and Board of Directors of the Company and BPI. There can be no assurance that
such Reverse Acquisition will be successful.
Oil and Gas Operations
The Company is a developmental stage company that has devoted substantially
all of its efforts since inception to establishing its business plan, and
operations have not yet commenced. Commercial oil and gas operations are
expected to begin early 1998, although numerous factors may cause commencement
of such operations to be delayed. Although the Company believes that its markets
will support oil and gas operations and will enable the Company to establish
sufficient market share to operate profitably, the Company's plan to achieve
profitable operations, if any, is subject to various uncertainties. Because of
the substantial number of variables applicable to an oil and gas operation, and
the Company's lack of operating history, there can be no assurance that the
Company's business strategy will prove accurate, or that the Company's plan of
operation will lead to profitability.
As of the date hereof the Company has not had any changes in or
disagreements with its independent accountants on any accounting and financial
disclosure.
Bass Petroleum, Inc.
BPI's principal executive offices are located at 1703 Edelweiss Drive,
Cedar Park, Texas 78613. BPI is involved in oil and gas exploration, development
and operations and has existing revenues and operating properties. See financial
statements and notes thereto relating to BPI, attached here to as Exhibit "B."
BPI has 43 shareholders and 8,655,625 shares of common stock, no par value,
issued and outstanding. There is no public market for BPI's common stock. In the
last two fiscal years, BPI has not paid any cash dividends to the holders of
BPI's common stock.
<PAGE>
Management's Discussion And Analysis Of Financial Condition and Results Of
Operations
The following discussion should be read in conjunction with BPI's Financial
Statements and respective notes thereto, included elsewhere herein. The
information below should not be construed to imply that the results discussed
herein will necessarily continue into the future or that any conclusion reached
herein will necessarily be indicative of actual operating results in the future.
Such discussion represents only the best present assessment of management of
BPI.
Overview
BPI derives its revenues from its operating activities including sales
of oil and gas and sales of oil and gas properties. BPI's capital for investment
in producing oil and gas properties has been provided by cash flow from
operating activities and from bank financing. BPI categorizes its operating
expenses into the categories of production expenses and other expenses. Due to
costs associated with the acquisition of the Company, BPI's net expenses for the
six months ended June 30, 1997 were substantially higher than net expenses for
the six months ended June 30, 1996.
Comparison of six months ended June 30, 1997 to the six months ended
June 30, 1996
Results Of Operations
Revenues increased 20% or $63,862 to $379,861 for the six-month period
ended June 30, 1997 from the comparable 1996 period. Production volumes
increased 27.5% on a BOE basis. Average gas sales prices decreased slightly and
average oil sales prices increased from 1996 to 1997.
Six Months Ended June 30
1997 1996
---- ----
Oil production 12,783 bbls 9,185 bbls
Average sales price per barrel $19.74 $19.53
Gas production 34,989 Mcf 32,487 Mcf
Average sales price per Mcf $1.65 $1.70
Production expenses increased 67% or $35,240 to $87,712 for the six month
period ended June 30, 1997 from the comparable 1996 period. This was due to the
acquisition of additional operations in Wyoming and additional workovers in the
form of remedial repairs. Total costs and expenses increased 37% or $77,051 to
$287,373 for the six month period ended June 30, 1997 from the comparable 1996
period. General and administrative overhead costs increased due to costs
associated with evaluating acquisitions, legal expenses, and additional staff.
<PAGE>
Net other expenses for the six months ended June 30, 1997 was $54,984
compared to $9,889 for 1996. This was primarily due to expenses related to BPI's
acquisition of the Company.
BPI's net income decreased by $53,548 (80%) to $13,494 for the six month
period ended June 30, 1997 from the comparable 1996 period. The decrease in net
income was primarily due to expenses related to BPI's acquisition of the
Company.
Liquidity And Capital Resources
Cash flow from operating activities remains positive at $53,359 for the six
months ended June 30, 1997, an increase of $20,116 over the 1996 period.
Cash flow used by investing activities was $89,035 in the period ended June
30, 1997 compared to $1,444 for June 30, 1996. This was primarily due to the
purchase of oil and gas properties during the first six months of 1997. Cash
flow used by financing activities was $9,805 for the six months ended June 30,
1997 compared to $22,730 for the same period in 1996; this was due to repayments
of long term debt.
Worldwide crude oil prices continue to fluctuate in 1997. BPI cannot
predict how prices will vary during the remainder of 1997 and what effect they
will ultimately have on BPI, but management believes that BPI will be able to
generate sufficient cash from operations to service its bank debt and provide
for maintaining current production of its oil and gas properties.
Commitments for future capital expenditures were not material at June 30,
1997. The timing of most capital expenditures for new operations is relatively
discretionary. Therefore, BPI can plan expenditures to coincide with available
funds in order to minimize business risks.
Comparison of year ended December 31, 1996 to year ended December 31, 1995
Results Of Operations
Revenues increased by 25% or $128,530 to $648,719 for the year ended
December 31, 1996 from the comparable 1995 period. In 1996, oil production
volume increased by 16% at the same time the average price per barrel increased
during 1996 by 15% to $20.10. Also, in 1996 the gas production volume decreased
by 13% while the average price per Mcf was $1.76, a 20% increase.
Year Ended December 31
1996 1995
---- ----
Oil production 18,370 bbls $15,858 bbls
Average sales price per barrel $20.10 $17.38
Gas production 10,829 Mcf 12,186 Mcf
Average sales price per Mcf $1.76 $1.47
<PAGE>
Oil and gas production expenses increased to $122,862 in the 1996 period, a
$31,792 or 35% increase over the 1995 period. The increase was primarily
attributable to workovers and repairs. Depreciation and depletion increased from
year end 1996 to $103,336 from $99,166 from the comparable 1995 period. This was
primarily due to the acquisition of additional oil and gas properties.
General and administrative expenses increased to $251,660 in the 1996
period, a $70,710 or 39% increase over the 1995 period, primarily due to
increased salaries.
Net other expense for the 1996 period was $8,707 compared to $24,767 in the
1995 period. This was primarily attributed to the increase on the gain on oil
and gas leases and equipment during year end 1996.
BPI's net income increased by $25,013 or 28% to $115,132 from the
comparable 1995 period. This was primarily due to increases in oil and gas sales
and operational fees.
Liquidity And Capital Resources
During the current fiscal year, BPI's liquidity has remained strong enough
to meet its short term needs. The sources of liquidity and capital resources are
generated from cash on hand, cash provided by operations and from credit
available from financial institutions. Cash flow provided by operating
activities for the year ended December 31, 1996 was $103,873 compared to
$332,453 for 1995. The decrease was primarily due to receiving advances of
$110,709 from a gas purchase in 1995 and subsequently repaying the advances
during 1996. Cash flow used for investing activities was $115,131 for year end
1996 compared to $400,943 for year end 1995. This was due primarily to the
investment in additional oil and gas properties in each year. In each of the
last two years, the Company's investment in producing oil and gas properties was
provided by cash flow from operating activities, sales of other oil and gas
properties, and from borrowing from banks. Cash flow provided by financing
activities for the year end 1996 was $10,328 compared to $103,337 for the period
ended 1995. The decrease was primarily due to repayment of multiple notes
maturing in 1996. Additionally, a certificate of deposit was pledged to secure a
note payable in 1995.
Capital Requirements
Management believes BPI will be able to meet its current operating needs
through internally generated cash from operations. Management believes that oil
and gas property investing activities in 1997 can be financed through cash on
hand, cash from operating activities and bank borrowing. BPI anticipates
continued investments in proven oil and gas properties in 1997. If bank credit
is not available, BPI may not be able to continue to invest in strategic oil and
gas properties. BPI cannot predict how oil and gas prices will fluctuate during
1997 and what effect they will ultimately have on BPI, but Management believes
that BPI will be able to generate sufficient cash from operations to service its
bank debt and provide for maintaining current production of its oil and gas
properties. BPI had no significant commitments for capital expenditures at
December 31, 1996.
<PAGE>
Proposal 1: Approval of the Amendment to Change Name
- -----------------------------------------------------
On July 14, 1997, the Board of Directors of the Company unanimously voted
to recommend to the shareholders that the Amendment be approved, whereby the
Company's articles of incorporation be amended to change the name of the Company
from "Energy Production Company" to "FieldPoint Petroleum Corporation." The
Company believes that the proposed name change is consistent with the Company's
recent change in business and operating strategy which includes acquiring
companies which are involved in oil and gas exploration, development, and
operations and which have existing revenues and producing properties.
Reaves, an officer, director, and shareholder of the Company, is the sole
director and shareholder of FieldPoint, Inc. ("FieldPoint"). FieldPoint is a
Texas corporation primarily engaged in private investments which to date has not
engaged in any material business operations. FieldPoint has no direct ownership
of the Company or BPI.
The Board of Directors believes that the Amendment is the best interests of
the Company and therefore recommends a vote FOR Proposal 1.
Proposal 2: Approval of the Reverse Acquisition
- ------------------------------------------------
The following discussion assumes that the Stock Split has been consummated,
and accordingly, all of the information set forth herein have been adjusted to
give effect to the Stock Split.
On July 14, 1997, the Board of Directors authorized and approved the
acquisition of all of the issued and outstanding shares of capital stock of BPI
and directed that the Reverse Acquisition be submitted to the stockholders of
the Company for approval at the Meeting. Following the completion of the Stock
Split and in connection with such Reverse Acquisition, the Company will issue an
aggregate of 4,000,000 unregistered shares of Common Stock to the shareholders
of BPI, on a pro rata basis, in exchange for an aggregate of 8,655,625 shares of
capital stock of BPI. The Reverse Acquisition will be effected pursuant to a
Plan of Exchange by and among the Company, BPI, and the shareholders of BPI, to
be dated as of December 22, 1997 (the "Plan"), which will be substantially in
the form attached hereto as Exhibit "A". All references in this Proxy Statement
to the Plan are qualified in their entirety by and subject to the more complete
information set forth in Exhibit "A". See "Beneficial Ownership of Common Stock
- - As of June 1, 1997 and After the Transactions" below for a description of the
impact of the Reverse Acquisition on the ownership of the Company.
The transactions contemplated by the Reverse Acquisition are scheduled to
close on December 31, 1997 (the "Effective Date"). The Company believes that the
Reverse Acquisition complies with the Company's business strategy of acquiring
companies which are involved in oil and gas exploration, development and
operations and have existing revenues and operating properties. Since October
1989, BPI has been primarily engaged in the business of oil and gas exploration
development and operations. Prior to the Reverse Acquisition, the Company had no
assets, liabilities, or significant business operations. The business of BPI
will be conducted in the same manner as the business of BPI is currently
conducted.
<PAGE>
Following the Reverse Acquisition, the Company will continue to carry out
its business strategy of acquiring producing oil and gas properties, including
leasehold and other working interests. The principal place of business of the
Company will be located at 1703 Edelweiss Drive, Cedar Park, Texas. The persons
who are serving as directors of the Company immediately prior to the Effective
Date will constitute the entire Board of Directors of BPI immediately after the
Effective Date. Following their election as such, the directors of BPI will
elect as officers of BPI the same persons who are elected as officers of the
Company following the Meeting. Neither the Company nor BPI has engaged
investment bankers or other professionals to render a fairness opinion and the
terms of the transaction were negotiated on an arms-length basis between the
shareholders of BPI and the Company. The directors of the Company have certain
relationships with BPI. See "Beneficial Ownership of Common Stock--Certain
Relationships and Related Transactions."
No taxable gain or loss will be recognized by the Company, BPI, or the
shareholders of BPI who receive shares of Common Stock of the Company for their
shares of capital stock of BPI in connection with the Reverse Acquisition, and
the adjusted tax basis of shares of Common Stock received by a shareholder of
BPI as a result of the Reverse Acquisition will be the same as the adjusted tax
basis of the shares of capital stock of BPI exchanged into such shares of Common
Stock of the Company. No cash shall be paid by the Company or to the
shareholders of BPI or otherwise in connection with the Reverse Acquisition.
Each shareholder is urged to consult a tax advisor as to the consequences of the
Reverse Acquisition under all applicable tax laws.
The foregoing discussion should be read in conjunction with the financial
statements and notes thereto relating to BPI, attached hereto as Exhibit "B".
The Board of Directors believes that the ratification of the Reverse
Acquisition by the shareholders of the Company is in the best interests of the
Company and therefore recommends a vote FOR Proposal 2.
Dissenter's Rights Relating to Proposal 2
- -----------------------------------------
Pursuant to Article 113, Section 7-113-102 of the Colorado Business
Corporation Act (the "Colorado Law"), each shareholder has the right and is
entitled to dissent from the consummation of the Reverse Acquisition and receive
payment of the fair value of the shares of Common Stock owned by any such
shareholder ("Dissenters' Rights"). In the event a shareholder elects to
exercise Dissenters' Rights, such shareholder must comply with the applicable
procedures set forth in Sections 7-113-201 through 7-113-209 of the Colorado
Law, as summarized below, in order to receive payment of the fair value of any
shares of Common Stock. In compliance with Section 7-113-201 of the Colorado
Law, a copy of Article 113 of the Colorado Law is set forth in its entirety in
Exhibit "C" to this Proxy Statement.
THE FOLLOWING IS ONLY A SUMMARY OF THE PROCEDURES FOR DISSENTING
SHAREHOLDERS PRESCRIBED BY SECTIONS 7-113-101 THROUGH 7-113-302 OF THE COLORADO
LAW AND IS QUALIFIED IN ITS ENTIRETY BY THE FULL TEXT OF ARTICLE 113 OF THE
COLORADO LAW AS SET FORTH IN EXHIBIT "C" TO THIS PROXY STATEMENT.
<PAGE>
Section 7-113-102 of the Colorado Law provides that each record or
beneficial shareholder of the Company is entitled to dissent from the Reverse
Acquisition and demand payment of the fair value of the shares of Common Stock
owned by such shareholder. In accordance with Section 7-113-202 of the Colorado
Law, in order for a shareholder to exercise Dissenters' Rights, such shareholder
must, prior to the taking of the vote of the shareholders on the Reverse
Acquisition, deliver to the Company written notice of such shareholder's intent
to demand payment for shares in the event the Reverse Acquisition is approved
and shall not vote such shareholder's shares in favor of the Reverse
Acquisition.
In accordance with Section 7-113-203 of the Colorado Law, within ten (10)
days after the Reverse Acquisition is effected, the Company must deliver a
written dissenter's notice ("Dissenter's Notice") to all shareholders who
satisfy the requirements of Section 7-113-202 of the Colorado Law no later than
ten (10) days after the effective date of the Reverse Acquisition. The
Dissenter's Notice must state that the corporate action was authorized and the
effective date of such action, set forth the address at which the Company will
receive payment demands and where stock certificates shall be deposited, supply
a form for demanding payment, which form shall request an address from the
dissenting shareholder to which payment is to be made, and set the date by which
the Company must receive the payment demand and stock certificates, which date
shall not be less than thirty (30) days after the date the Dissenter's Notice
was delivered. Furthermore, the Dissenter's Notice may require that all
beneficial shareholders, if any, certify as to the assertion of Dissenters'
Rights, and be accompanied by Article 113 of the Colorado Law.
Pursuant to Section 7-113-204 of the Colorado Law, a shareholder receiving
the Dissenter's Notice must demand payment in writing and deposit such
shareholder's stock certificates in accordance with the terms of the Dissenter's
Notice. A shareholder who does not comply with the foregoing requirements is not
entitled to the fair value for such shareholder's shares under Article 113 of
the Colorado Law.
Upon the later of the effective date of the Reverse Acquisition, or upon
receipt of a demand for payment by a dissenting shareholder, the Company must
pay each dissenting shareholder who complies with Section 7-113-204 the amount
the Company estimates to be the fair value of such shares, plus accrued interest
in accordance with Section 7-113-206 of the Colorado Law. The payment shall be
accompanied by (i) the Company's balance sheet as of the fiscal year ending not
more than sixteen (16) months before the date of payment, an income statement
for that year, a statement of change in shareholders' equity for that year, and
the latest available interim financial statement; (ii) a statement of the
Company's estimate of the fair value of the shares; (iii) an explanation by the
Company of how the interest was calculated; (iv) a statement of the dissenting
shareholder's right to demand payment under Section 7-113-209 of the Colorado
Law; and (v) a copy of Article 113 of the Colorado Law.
In the event a dissenting shareholder is dissatisfied with the Company's
payment or offer of payment, such dissenting shareholder, pursuant to Section
7-113-209 of the Colorado Law, may notify the Company in writing within thirty
(30) days after the Company makes or offers to pay each dissenting shareholder,
of such shareholder's own estimate of the fair value of such shares and the
amount of interest due, and demand payment of such shareholder's estimate, less
any payment already made by the Company under Section 7-113-206, or reject the
<PAGE>
Company's offer under Section 7-113-208 and demand payment for the fair value of
the shares and interest due. A dissatisfied dissenting shareholder may effect
the foregoing if: (i) the dissenting shareholder believes that the amount paid
or offered is less than the fair value of the shares or that the interest due is
incorrectly calculated; (ii) the Company has failed to make payment within sixty
(60) days after the date set for demanding payment; or (iii) the Company does
not return the deposited stock certificates within the time specified by Section
7-113-207 of the Colorado Law. In the event a demand for payment under Section
7-113-209 remains unresolved, the Company may commence a court proceeding to
determine the fair value of the shares and accrued interest within sixty (60)
days after receiving the payment demand from a dissenting shareholder.
ITEM 2
ELECTION OF DIRECTORS
The directors are elected annually by the shareholders of the Company. The
Bylaws of the Company provide that the number of directors will consist of at
least three and no more than nine directors. The shareholders will elect three
directors for the coming year. The three nominees presently serve as directors
of the Company.
Unless otherwise instructed or unless authority to vote is withheld, the
enclosed proxy will be voted for the election of the nominees listed herein.
Although the Board of Directors of the Company does not contemplate that any of
the nominees will be unable to serve, if such a situation arises prior to the
Meeting, the persons named in the enclosed proxy will vote for the election of
such other person(s) as may be nominated by the Board of Directors.
Nominees
Set forth below for each nominee are his name and age, his positions with
the Company, and his principal occupation and business experience during the
past five years:
Ray D. Reaves, age 35, has been Chairman, Chief Executive Officer,
President, and Director of the Company since May 1997. Reaves has also served as
Chairman, Chief Executive Officer, Chief Financial Officer and Director of BPI
from October 1989 to present and as President of FieldPoint, Inc., a private
investment firm.
Robert A. Manogue, age 72, has been a Director of the Company since July
1997. Since 1982, Manogue has been retired and has been involved in house
construction in Albuquerque, New Mexico under R. A. Manogue Construction. From
1976 to 1982, Manogue was President of C. P. Clare International N. V. in
Brussels, Belgium, a $50 million subsidiary of General Instruments Corporation.
He also served as Vice President of Marketing for Emerson Electric Company, a
manufacturer and marketer of consumer and industrial products, from 1971 to
1976.
Robert D. Bryant, age 54, has been a Director of the Company since July
1997. From November 1994 to present, Bryant has been President of Canmax
Corporation. From May 1993 to October 1994, Bryant was President of Network Data
Corporation. From January 1993 to May 1993, he served as Senior Vice President,
Corporate Development, of Network Data Corporation. From May 1991 to July 1992,
he served as President of Dresser Industries, Inc., Wayne Division, a leading
international manufacturer of fuel dispensing equipment. Additionally, from
August 1989 to May 1991, Bryant was President of Schlumberger Limited, Retail
Petroleum Systems Division, U.S.A., a division of Schlumberger Corporation.
<PAGE>
Board of Directors, Committees and Meetings
The Board of Directors held one meeting in fiscal year 1996, and each
Director attended the meeting. The Company has not established an audit,
nominating or compensation committee, or other committees performing similar
functions.
Director's Fees
The directors receive $250 for each meeting of the Board of Directors or
any committee thereof. In addition, the directors are reimbursed for the
reasonable expenses incurred for each Board of Directors meeting attended.
Certain Relationships and Related Transactions
The Company entered into an annual management agreement with its prior
controlling shareholder, Robert Watson, Inc., in 1987 and renewed the agreement
each year until December 1996. The agreement called for an amount reached by
mutual agreement of the Company and Robert Watson, Inc. to be paid each year.
The Company paid management fees of $0 in 1996, $0 in 1995, and $1,500 in 1994.
As of December 31, 1996, 1995 and 1994, the Company had a receivable from
Robert Watson, Inc. in the amount of $20,000 ("Receivable"). This Receivable
bore interest at 10% and was due on demand. In connection with the successful
completion of the transfer of the management of the Company to BPI, the Company
paid a $20,000 management fee ("Management Fee") to Robert Watson, Inc. The
Receivable was repaid in May 1997 by offsetting the Management Fee.
As discussed above, the Company intends to acquire all of the outstanding
shares of BPI, the majority shareholder of the Company, in a share exchange. Ray
D. Reaves, Director, President, Chairman, Chief Executive Officer and Chief
Financial Officer of the Company, is Chairman, Chief Executive Officer, Chief
Financial Officer, and Director of BPI. Mr. Reaves is the beneficial owner of
approximately 60% of the common stock of BPI. Mr. Reaves' shares of BPI common
stock include the following: 5,201,000 shares held directly by Mr. Reaves and
the option to purchase 200,000 shares which are currently exercisable. Robert A.
Manogue, Director of the Company, is a partner in OHM Partnership, which owns
600,000 shares of the common stock of BPI, and options to purchase 100,000
shares which are currently exercisable. Roger D. Bryant, Director of the
Company, owns options to purchase 100,000 shares of the common stock of BPI.
Management believes that these prior transactions are on terms no less
favorable to the Company as could be obtained from independent third parties.
All future transactions with related parties will be approved by a majority of
disinterested, independent members of the Company's Board of Directors, if
available.
<PAGE>
Executive Compensation
No compensation has been paid to any of the Company's directors or
executive officers for the year ended December 31, 1996.
Name Position with Company Compensation
- ---- --------------------- ------------
Robert N. Watson, Jr. Director, President, Chairman $0
and Chief Executive Officer
The Board of Directors unanimously recommends a vote FOR the election of
each of the nominees set forth above.
ITEM 3
REVERSE STOCK SPLIT
On July 14, 1997, the Board of Directors of the Company approved and
authorized the effectuation a 75-to-1 reverse stock split, with respect to all
of the issued and outstanding shares of Common Stock. Pursuant to the applicable
provisions of the Colorado Law, the Board of Directors directed that the Stock
Split be submitted to the stockholders of the Company for approval at the
Meeting.
As of July 14, 1997, there was a total of 30,961,778 shares of Common Stock
issued and outstanding. If the shareholders of the Company approve the Stock
Split described below, a total 30,961,778 shares of Common Stock, constituting
all of the currently issued and outstanding shares of Common Stock
(collectively, the "Pre-Split Shares"), shall be converted into an aggregate of
approximately 412,824 shares of Common Stock (collectively, the "Post-Split
Shares").
As a result, each outstanding Pre-Split Share shall be converted into
approximately 0.0133 Post-Split Shares and accordingly, certificates
representing one (1) Pre-Split Share will, effective as of the effective date of
the Stock Split, be deemed to represent approximately 0.0133 Post-Split Shares
of Company Common Stock. All of the Post-Split Shares will have the same rights,
preferences and privileges as the Pre-Split Shares of the Company. No additional
shares of Common Stock will be issued prior to the effective date of the Stock
Split. In addition, no fractional shares of Common Stock will be issued in
connection with the Stock Split, but in lieu thereof, each holder of shares of
Common Stock who would otherwise have been entitled to a fraction of a share of
Common Stock will be given a fraction of a share of Common Stock sufficient,
when added to the fraction to which the holder would be entitled, to equal a
whole share of Common Stock. No holder will be entitled to dividends or other
rights in respect of any fractional interest.
Shareholders of the Company will need to exchange their stock certificates
representing Pre-Split Shares for newly issued stock certificates representing
Post-Split Shares of the Company. Stock certificates representing Pre-Split
Shares of the Company should not be destroyed or returned to the Company. Each
shareholder of the Company must execute the certificate or certificates or an
appropriate stock power representing the Pre-Split Shares owned by such
<PAGE>
shareholder and surrender such certificate or certificates or stock power to the
Company's transfer agent, American Securities Transfer & Trust, Inc., c/o Pam
Keane, 938 Quail Street, Suite 101, Lakewood, Colorado 80215-5513, (303)
234-5300. The Company's transfer agent will issue in place thereof certificates
representing Post-Split Shares for a charge of Fifteen and No/100 Dollars
($15.00) per certificate, which cost shall be borne by the shareholder
surrendering the certificate. Accordingly, each holder of a certificate or
certificates representing one (1) Pre-Split Share, upon surrender of the same to
the Company's transfer agent, shall be entitled to receive in exchange therefor
a certificate representing 0.0133 Post-Split Shares.
The primary effect of the Stock Split will be a reduction in the aggregate
amount of the Company's issued and outstanding shares of Common Stock. The Board
of Directors believes that it is desirable to have additional authorized shares
of Common Stock available for acquisitions, employee benefit and incentive
programs, and for other general corporate purposes. If the Stock Split is
approved, the additional shares of authorized but unissued shares of Common
Stock would be available for issuance without further action by Shareholders,
unless such action is required by applicable law.
The Board of Directors believes that the proposed reverse stock split of
all of the issued and outstanding shares of Common Stock of the Company is in
the best interests of the Company and its Shareholders and therefore recommends
a vote FOR Item 3.
ITEM 4
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected the firm of Hein & Associates, L.L.P.
as the Company's independent auditors for the current fiscal year. Although
shareholder approval of the Board of Directors' selection of Hein & Associates,
L.L.P. is not required by Colorado law, the Board of Directors believes that it
is advisable to give shareholders an opportunity to ratify this selection. If
this proposal is not approved at the Meeting, the Board of Directors will
reconsider its selection of Hein & Associates, L.L.P.
In the event the appointment of Hein & Associates, L.L.P., as independent
auditors for the current fiscal year, is not ratified by the stockholders, the
adverse vote will be considered as a direction to the Board of Directors to
select other auditors for the following year. However, because of the difficulty
in making any substitution of auditors so long after the beginning of the
current year, it is contemplated that the appointment for the current fiscal
year will be permitted to stand unless the Board of Directors finds other reason
for making a change.
Representatives of Hein & Associates, L.L.P. are expected to be present at
the Meeting and will have the opportunity to make a statement if they desire to
do so and will also be available to respond to appropriate questions from
Shareholders.
The Board of Directors believes that the ratification of the selection of
Hein & Associates, L.L.P. as the Company's independent auditors for the current
fiscal year is in the best interests of the Company and its Shareholders and
therefore recommends a vote FOR Item 4.
<PAGE>
BENEFICIAL OWNERSHIP OF COMMON STOCK
As of December 31, 1996
The following table sets forth certain information, as of December 31,
1996, with respect to the beneficial ownership of the Common Stock by (i) each
person known by the Company to beneficially own more than five percent (5%) of
the outstanding shares of Common Stock, (ii) each director or nominee for
director of the Company, (ii) each executive officer of the Company and (iv) all
directors and executive officers of the Company as of December 31, 1996 as a
group. Unless otherwise indicated, each person listed above has sole voting and
investment power with respect to the shares listed.
Name and Address of Amount and Nature
Beneficial Owner of Beneficial Ownership Percent of Class
- ---------------- ----------------------- ----------------
Robert N. Watson, Jr. (1) 16,728,000(2) 54%
P.O. Box 202650
Austin, Texas 78720
William G. Watson(1) 0 0%
P.O. Box 202650
Austin, Texas 78720
Linda R. Watson(1) 0 0%
P.O. Box 202650
Austin, Texas 78720
Robert Watson, Inc. 16,728,000 (3) 54%
P.O. Box 202650
Austin, Texas 78720
All Officers and Directors
as a group (3 persons) 16,728,000 54%
(1) Resigned as an officer and/or director of the Company effective May 22,
1997.
(2) Mr. Watson is the beneficial owner of these shares based upon his ownership
of one hundred percent (100%) of the
common stock of Robert Watson, Inc.
(3) Sold to Bass Petroleum, Inc. on May 22, 1997.
As of June 1, 1997 and After the Transactions
The following table sets forth certain information, as of June 1, 1997,
with respect to the beneficial ownership of the Common Stock by (i) each person
known by the Company to beneficially own more than five percent (5%) of the
outstanding shares of Common Stock, (ii) each director or nominee for director
of the Company, (ii) each executive officer of the Company and (iv) all
directors and executive officers of the Company as of June 1, 1997 as a group.
Unless otherwise indicated, each person listed above has sole voting and
investment power with respect to the shares listed, and the information set
forth below under the caption "After the Transactions" has been adjusted to give
effect to the Stock Split and the Reverse Acquisition.
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Amount and Nature
of Beneficial Ownership Percent of Class
----------------------- ----------------
Name and Address of Before After Before After
Beneficial Owner the Transactions the Transactions the Transactions the Transactions
- ---------------- ---------------- ---------------- ---------------- ----------------
Bass Petroleum, Inc. 16,728,000 1) 223,040 54% 5.1%
1703 Edelweiss Drive
Cedar Park, Texas 78613
Ray D. Reaves 16,728,000(1) 2,832,040 (2) 54% 61.2%
1703 Edelweiss Drive
Cedar Park, Texas 78613
Robert A. Manogue 376,000 (3) 8.3%
1703 Edelweiss Drive
Cedar Park, Texas 78613
Roger D. Bryant 100,000 (4) 2.2%
1703 Edelweiss Drive
Cedar Park, Texas 78613
All Officers and Directors 16,728,000(1) 3,308,040 (2,3,4) 54% 68.7%
</TABLE>
<PAGE>
as a group (3 persons)
- -----------------------
(1) Mr. Reaves is the beneficial owner of these shares based upon his position
as Chairman, Chief Executive Officer, Chief Financial Officer, Director and
owner of approximately 60% of the common stock of BPI.
(2) Includes (i) shares beneficially owned based on position with BPI; (ii)
estimated shares received in Reverse Acquisition in exchange for common
stock of BPI owned by Mr. Reaves; and (iii) 200,000 shares of Common Stock
underlying an option granted to Mr. Reaves by BPI, which option has been
assumed by the Company.
(3) Includes (i) estimated shares received in Reverse Acquisition in exchange
for 600,000 shares of common stock of BPI owned by a partnership of which
Mr. Manogue is a partner; and (ii) 100,000 shares of Common Stock
underlying an option of BPI granted to Mr. Manogue by BPI, which option has
been assumed by the Company.
(4) Includes 100,000 shares of Common Stock underlying an option granted to Mr.
Bryant by BPI, which option has been assumed by the Company.
The Company does not employ any persons, other than its directors, who make
or are expected to make any significant contributions to the business of the
Company. There is no family relationship between any present director, executive
officer or person nominated or chosen by the Company to become a director or
executive officer. No present director or executive officer of the Company has
been the subject of any civil or criminal proceeding during the past five years,
which is material to an evaluation of its integrity or ability to serve as an
officer or director, nor is any such person the subject of any order, judgment
or decree of any federal or state authority which is material to an evaluation
of its abilities or integrity.
<PAGE>
Recent Change in Control
In May 1997, BPI acquired control of the Company in the following manner.
Robert Watson, Inc., the controlling shareholder of the Company at the time,
sold 16,728,000 shares of Common Stock to BPI in consideration of the cash
payment of $45,000 by BPI. The consideration paid by BPI in this transaction
came from BPI's working capital. As of June 1, 1997, BPI owned an aggregate of
16,728,000 shares of Common Stock, constituting approximately 54% of all of the
issued and outstanding shares of Common Stock. Prior to the resignation of
Robert N. Watson, Jr., as Director, President, Chairman and Chief Executive
Officer of the Company in May 1997, Robert N. Watson, Jr. appointed Ray D.
Reaves Director of the Company.
Reports
To the best knowledge of the Company, all reports as required under Section
16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")
were filed on a timely basis during the fiscal year ended December 31, 1996.
OTHER MATTERS
The Board of Directors does not know of any other matters which may come
before the Meeting. However, if any other matters are properly presented to the
Meeting, it is the intention of the persons named in the accompanying proxy to
vote, or otherwise act, in accordance with their judgment on such matters.
COST OF SOLICITATION
The Company will bear the costs of solicitation of proxies from its
shareholders. In addition to the use of mail, proxies may be solicited by
directors, officers and regular employees of the Company in person or by
telephone or other means of communication. The directors, officers and employees
of the Company will not be compensated additionally for the solicitation but may
be reimbursed for out-of-pocket expenses in connection with the solicitation.
Arrangements are also being made with brokerage houses and any other custodians,
nominees and fiduciaries for the forwarding of solicitation material to the
beneficiary owners of the Company, and the Company will reimburse the brokers,
custodians, nominees, and fiduciaries for their reasonable out-of-pocket
expenses.
STOCKHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the 1998 Annual
Meeting of the Shareholders must be received by the Company at its principal
office in Cedar Park, Texas not later than April 30, 1998 for inclusion in the
proxy statement for that meeting.
By Order of the Board of Directors,
Ray D. Reaves, President
<PAGE>
EXHIBIT "A"
PLAN OF EXCHANGE
This PLAN OF EXCHANGE (the "Plan") is entered into as of the 22nd day
of December 1997, by and between Energy Production Company, a Colorado
corporation (the "Parent"), Bass Petroleum, Inc., a Texas corporation whose
address is 1703 Edelweiss Drive, Cedar Park, Texas 78613 (the "Subsidiary"), and
all of the shareholders of the Subsidiary as set forth on Schedule 1 hereto
(collectively, the "Shareholders").
W I T N E S S E T H:
WHEREAS, the Parent is a corporation organized and existing under the
laws of the State of Colorado, having been incorporated on March 11, 1980;
WHEREAS, the Subsidiary is a corporation organized and existing under
the laws of the State of Texas, having been incorporated on October 12, 1989;
and
WHEREAS, the Board of Directors of the Parent has determined that it is
in the best interests of the Parent to acquire an aggregate of 8,655,625 shares
of common stock of the Subsidiary, constituting all of the issued and
outstanding shares of capital stock of the Subsidiary, in exchange for the
issuance of an aggregate of 4,000,000 shares of common stock of the Parent to
the Shareholders, on a pro rata basis (the "Exchange").
NOW, THEREFORE, in consideration of the premises, the mutual covenants
herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
Exchange
On the effective date of the Exchange, December 31, 1997 ("Effective
Date"), the Parent shall issue, on a pro rata basis, to each of the Shareholders
an aggregate of 4,000,000 shares of common stock of the Parent in exchange for
the sale, transfer, assignment, and conveyance by the Shareholders to the Parent
of an aggregate of 8,655,625 shares of common stock of the Subsidiary, which
shares constitute all of the issued and outstanding shares of capital stock of
the Subsidiary. No cash will be paid by the Company or otherwise to the
shareholders of the Subsidiary in connection with the Exchange.
ARTICLE II
Articles of Incorporation of the Subsidiary
The Articles of Incorporation of the Subsidiary ("Texas Charter"), as
in effect on the date hereof, shall continue in full force and effect without
change unless and until amended in accordance with applicable law.
<PAGE>
ARTICLE III
Bylaws of the Subsidiary
The Bylaws of the Subsidiary ("Texas Bylaws"), as in effect on the date
hereof, shall continue in full force and effect without change unless and until
amended in accordance with applicable law.
ARTICLE IV
Officers and Directors of the Subsidiary
4.01. On the Effective Date, the officers and directors of the
Subsidiary shall be such officers and directors of the Subsidiary, as in office
at such date, and such persons shall hold office in accordance with the Texas
Bylaws until their respective successors shall have been appointed or elected.
4.02. If, on the Effective Date, a vacancy shall exist in the Board of
Directors of the Subsidiary, such vacancy shall be filled in the manner provided
by the Texas Bylaws.
ARTICLE V
Termination of Merger
This Plan may be terminated and the Exchange abandoned at any time
prior to the Effective Date, whether before or after the approval of this Plan
by the Shareholders, by the consent of the Board of Directors of the Parent and
the Subsidiary.
ARTICLE VI
Miscellaneous
In order to facilitate the filing and recording of this Plan, this Plan
may be executed in counterparts, each of which when so executed shall be deemed
to be an original and all such counterparts shall together constitute one and
the same instrument.
[The Remainder of This Page Intentionally Left Blank.]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Plan as of
the date first written above.
PARENT:
------
ENERGY PRODUCTION COMPANY
By:
Name:
Title:
SUBSIDIARY:
----------
BASS PETROLEUM, INC.
By:
Name:
Title:
SHAREHOLDERS:
------------
See Schedule 1 hereto
<PAGE>
Schedule 1
Shareholders of Bass Petroleum, Inc.
Cert. # Name # of Shares
1 Ray Reaves 5,001,000
2 Gernell Bradley 600,000
3 Gernell Bradley 400,000
4 Mildred Babich 400,000
5 Peter J. Babich 400,000
6 OHM Partnership 600,000
7 Country Cousin, Inc. 2,000
8 Urban Anslinger 7,000
9 Thomas F. Jones 3,000
10 Nathan Raska 3,000
11 Elizabeth Jeffrey 3,000
12 Ed Sims 3,000
13 Jerry B. Foreman 625
14 Barry F. Hluchan 3,000
15 Somerset Partners 11,500
16 James S. Dearth 2,500
17 W. H. Cardwell 1,500
18 Gernell Bradley 500
19 Millard D. Logan 1,500
20 E. P. Hansen 500
21 Hoyt & Marjorie Ambrosius 4,000
22 J. A. Longwell 2,500
23 Harry F. Warnke 4,000
24 Marvin Kolinek, Jr. 500
25 Robert E. Madison 500
26 Jack Logan 6,000
27 Lowell Schultz 1,000
28 Don Leach 2,500
29 John E. Fox 500
30 Jeff Wenaas 1,500
31 Bill Williams 13,500
32 Mildred Babich 5,000
33 Frank Petty 1,500
34 Richard & Dolores Jeffries 1,500
35 Peter Koch 3,000
36 Mattie Johnson 6,500
37 John Hardie 2,500
<PAGE>
Cert. # Name # of Shares
38 T. C. Fleming 500
39 George Arp 1,500
40 William Mangold 1,500
41 Wayne Lindholm 1,500
42 Gernell Bradley 8,500
43 Diana Sanders 1,500
44 Rodger Estes 500
45 Richard & Carolyn Dale 1,500
46 Joann Deihl (Ron D. Deihl) 1,500
47 Mildred Babich 300,000
48 Peter J. Babich 300,000
49 Gernell D. Bradley 300,000
50 Joyce & Gilbert Daney Jr. 37,000
51 Ray Reaves 200,000
<PAGE>
EXHIBIT B
INDEX TO FINANCIAL STATEMENTS
Bass Petroleum, Inc.
<TABLE>
<S> <C>
Independent Auditor's Report..............................................F-1
Balance Sheets............................................................F-2
Statements of Income and Retained Earnings................................F-4
Statements of Cash Flows..................................................F-5
Notes to Financial Statements.............................................F-7
Bass Petroleum, Inc. and Energy Production Company
Unaudited Pro Forma Financial Statements..................................F-14
Unaudited Pro Forma Balance Sheet - June 30, 1997.........................F-15
Unaudited Pro Forma Income Statement - Six Months Ended June 30, 1997.....F-17
Unaudited Pro Forma Income Statement - Year Ended December 31, 1996.......F-18
</TABLE>
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Stockholders
Bass Petroleum, Inc.
We have audited the accompanying balance sheets of Bass Petroleum, Inc. as of
December 31, 1996 and 1995, and the related statements of income and retained
earnings and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 financial statements referred to above present fairly, in
all material respects, the financial position of Bass Petroleum, Inc. as of
December 31, 1996 and 1995, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
HEIN + ASSOCIATES LLP
Dallas, Texas
February 7, 1997
F-1
<PAGE>
<TABLE>
<CAPTION>
BASS PETROLEUM, INC.
BALANCE SHEETS
ASSETS
------
<S> <C> <C> <C> <C>
(Unaudited)
JUNE 30, DECEMBER 31,
---------- -------------------------
1997 1996 1995
----------- ----------- -----------
CURRENT ASSETS:
Cash $ 12,173 $ 57,454 $ 58,384
Certificate of deposit, pledged 20,000 120,000 100,000
Trading securities 2,880 2,880 2,880
Accounts receivable:
Oil and gas sales 100,380 107,560 106,976
Joint interest billings, no allowance for doubtful
accounts considered necessary 47,289 44,707 52,988
Advances to stockholder -- -- 3,492
Prepaid expenses 1,635 1,635 3,035
----------- ----------- -----------
Total current assets 184,357 334,236 327,755
PROPERTY AND EQUIPMENT:
Oil and gas properties (successful efforts method):
Leasehold costs 951,289 786,860 647,785
Lease and well equipment 92,551 87,123 75,013
Furniture and equipment 28,526 24,119 22,939
Transportation equipment 69,080 54,444 67,444
Less accumulated depletion and depreciation (298,196) (242,115) (157,990)
----------- ----------- -----------
Net property and equipment 843,250 710,431 655,191
NOTE RECEIVABLE -- -- 38,000
OTHER ASSET 5,000 5,000 --
----------- ----------- -----------
Total assets $ 1,032,607 $ 1,049,667 $ 1,020,946
=========== =========== ===========
</TABLE>
Continued
F-2
<PAGE>
<TABLE>
<CAPTION>
BASS PETROLEUM, INC.
BALANCE SHEETS, continued
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C>
(Unaudited)
JUNE 30, DECEMBER 31,
---------- -----------------------
1997 1996 1995
---------- ---------- ----------
CURRENT LIABILITIES:
Current portion of long-term debt $ 283,208 $ 246,707 $ 267,687
Accounts payable and accrued expenses 112,612 97,342 107,312
Advances from gas purchaser -- -- 110,709
Oil and gas revenues payable 120,652 122,938 137,052
Federal income taxes payable 41,022 47,022 32,309
Due to related party -- 27,733 4,392
---------- ----------
Total current liabilities 557,494 541,742 659,461
LONG -TERM DEBT, net of current portion 100,000 146,306 114,998
COMMITMENTS (Note 7)
STOCKHOLDERS' EQUITY:
Common stock, no par value, 60,000,000 shares authorized;
8,655,625 shares issued and outstanding 128,038 128,038 128,038
Retained earnings 247,075 233,581 118,449
---------- ---------- ----------
Total stockholders' equity 375,113 361,619 246,487
---------- ---------- ----------
Total liabilities and stockholders' equity $1,032,607 $1,049,667 $1,020,946
========== ========== ==========
</TABLE>
See accompanying notes to these financial statements.
F-3
<PAGE>
BASS PETROLEUM, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<S> <C> <C> <C> <C> <C>
(Unaudited)
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------------- -----------------------
1997 1996 1996 1995
--------- --------- --------- ---------
REVENUE:
Oil and gas sales $ 287,025 $ 206,314 $ 432,383 $ 374,294
Well operational and pumping fees 90,826 108,018 213,022 139,365
Other 2,000 1,657 3,314 6,530
--------- --------- --------- ---------
Total revenue 379,851 315,989 648,719 520,189
COSTS AND EXPENSES:
Production expense 87,712 52,472 122,862 91,070
Depletion and depreciation 55,500 53,300 103,336 99,166
General and administrative 144,161 104,550 251,660 180,950
--------- --------- --------- ---------
Total costs and expenses 287,373 210,322 477,858 371,186
OTHER INCOME (EXPENSE):
Gain on sale of assets -- 2,500 25,445 13,957
Loss on commodity trade -- -- -- (1,089)
Unrealized loss on securities -- -- -- (3,000)
Interest income (expense), net (12,765) (14,021) (35,773) (32,188)
Acquisition expenses (45,000) -- -- --
Miscellaneous 2,781 1,632 1,621 (2,447)
--------- --------- --------- ---------
Total other income (expense) (54,984) (9,889) (8,707) (24,767)
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 37,494 95,778 162,154 124,236
INCOME TAX PROVISION - CURRENT 24,000 28,736 47,022 34,117
--------- --------- --------- ---------
NET INCOME 13,494 67,042 115,132 90,119
RETAINED EARNINGS, Beginning of year 233,581 118,449 118,449 28,330
--------- --------- --------- ---------
RETAINED EARNINGS, End of year $ 247,075 $ 185,491 $ 233,581 $ 118,449
========= ========= ========= ---------
</TABLE>
See Accompany ing note to these financial statements.
F-4
<PAGE>
BASS PETROLEUM, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<S> <C> <C> <C> <C> <C>
(Unaudited)
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
-------------------------------------------------
1997 1996 1996 1995
--------- --------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 13,494 $ 67,042 $ 115,132 $ 90,119
Adjustments to reconcile to net cash provided by
operating activities:
Depletion and depreciation 55,500 53,300 103,336 99,166
Gain on sale of assets -- (2,500) (25,445) (13,957)
Unrealized loss on securities -- -- -- 3,000
Changes in current assets and liabilities:
Accounts receivable 4,598 (18,133) 11,189 (117,673)
Other 581 --
Prepaid expenses and other assets -- -- (3,600) --
Accounts payable and accrued expenses (18,528) (16,462) 28,084 88,732
Oil and gas revenues payable (2,286) 9,996 (14,114) 72,357
Advances (repayments) from gas purchaser -- (60,000) (110,709) 110,709
--------- --------- ---------
Net cash provided by operating activities 53,359 33,243 103,873 332,453
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of oil and gas properties -- -- 59,251 15,000
Purchase of oil and gas properties (169,992) (1,464) (153,202) (315,643)
Purchase of furniture and equipment (19,043) -- (1,180) (300)
(Increase)decrease in restricted cash 100,000 -- (20,000) (100,000)
--------- --------- ---------
Net cash used by investing activities (89,035) (1,464) (115,131) (400,943)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt -- -- 255,000 250,000
Repayments of long-term debt (9,805) (22,730) (231,672) (174,663)
Borrowing from stockholder -- -- -- 28,000
Repayment of stockholder -- -- (13,000) --
--------- ---------
Net cash provided by financing activities (9,805) (22,730) 10,328 103,337
--------- --------- --------- ---------
</TABLE>
Continued
F-5
<PAGE>
BASS PETROLEUM, INC.
STATEMENTS OF CASH FLOWS, continued
<TABLE>
<S> <C> <C> <C> <C> <C>
(Unaudited)
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 30,
1997 1996 1996 1995
--------- ------- -------- --------
NET INCREASE (DECREASE) IN CASH (45,481) 9,049 (930) 34,847
CASH, BEGINNING OF THE YEAR 57,454 58,384 58,384 23,537
---------- -------- -------- --------
CASH, END OF THE YEAR $ 11,973 $ 67,433 $ 57,454 $ 58,384
========== ======== ======== ========
SUPPLEMENTAL INFORMATION:
Cash paid during the year for interest $ 35,773 $ 16,715 $ 43,838 $ 34,327
========== ======== ======== ========
Cash paid during the year for income taxes $ -- $ -- $ 32,309 $ 5,315
========== ======== ======== ========
Oil and gas properties acquired for note payable $ -- $ -- $ -- $219,598
========== ======== ======== ========
Oil and gas properties acquired by decreasing note receivable $ -- $ 38,000 $ 38,000 $ --
========== ======== ======== ========
</TABLE>
See accompanying notes to these financial statements.
F-6
<PAGE>
BASS PETROLEUM, INC.
NOTES TO FINANCIAL STATEMENTS (The
period subsequent to December 31, 1996 is
unaudited.)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Operations Bass Petroleum, Inc. (the "Company")
is incorporated under the laws of the state of Texas. The Company is
engaged in the acquisition, operation and development of oil and gas
properties, which are located in South-Central Texas and Wyoming as of
December 31, 1996.
Cash and Cash Equivalents The Company considers all highly liquid debt
instruments purchased with a maturity of three months or less to be cash
equivalents.
Oil and Gas Producing Operations
The Company uses the successful efforts method of accounting for its oil
and gas producing activities. Costs incurred by the Company related to the
acquisition of oil and gas properties and the cost of drilling successful
wells are capitalized. Costs incurred to maintain wells and related
equipment and lease and well operating costs are charged to expense as
incurred.
Capitalized amounts for properties with proved reserves are classified as
proved property, and include both developed and undeveloped properties.
Amounts capitalized that relate to properties in which it has not been
determined if any reserves exist are classified as unproved property and
are assessed periodically for possible impairment. Any impaired amounts are
charged to expense. The Company had no unproved properties as of December
31, 1996 and 1995.
Capitalized amounts attributable to proved oil and gas properties are
depleted by the unit-of-production method based on proved reserves.
Depreciation and depletion expense for oil and gas producing property and
related equipment was $48,000, $45,091, $90,182 and $84,734 for the six
months ended June 30, 1997 and 1996 and the years ended December 31, 1996
and 1995, respectively.
Joint Interest Billings Receivable and Oil and Gas Revenue Payable Joint
interest billings receivable represent amounts receivable for lease
operating expenses and other costs due from third party working interest
owners in the wells that the Company operates. The receivable is recognized
when the cost is incurred and the related payable and the Company's share
of the cost is recorded.
Oil and gas revenue payable represents amounts due to third party revenue
interest owners for their share of oil and gas revenue collected on their
behalf by the Company. The payable is recorded when the Company recognizes
oil and gas sales and records the related oil and gas sales receivable.
Other Property
Other assets classified as property and equipment are primarily office
furniture and equipment and vehicles, and are carried at cost. Depreciation
is provided using the straight-line method over estimated useful lives
ranging from five to seven years. Gain or loss on retirement or sale or
other disposition of assets is included in income in the period of
disposition. Depreciation expense for other property and equipment was
$7,500, $6,577, $13,154 and $14,432 for the six months ended June 30, 1997
and 1996 and the years ended December 31, 1996 and 1995, respectively.
F-7
<PAGE>
BASS PETROLEUM, INC.
NOTES TO FINANCIAL STATEMENTS (The
period subsequent to December 31, 1996 is
unaudited.)
Income Taxes
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due, if any, plus
net deferred taxes related primarily to differences between the bases of
assets and liabilities for financial and income tax reporting. Deferred tax
assets and liabilities represent the future tax return consequences of
those differences, which will either be taxable or deductible when the
assets and liabilities are recovered or settled. Deferred tax assets
include recognition of operating losses that are available to offset future
taxable income and tax credits that are available to offset future income
taxes. Valuation allowances are recognized to limit recognition of deferred
tax assets where appropriate. Such allowances may be reversed when
circumstances provide evidence that the deferred tax assets will more
likely than not be realized. The amount of deferred tax assets and
liabilities as of December 31, 1996 and 1995 are immaterial.
Use of Estimates and Certain Significant Estimates
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires the Company's management
to make estimates and assumptions that affect the amounts reported in these
financial statements and accompanying notes. Actual results could differ
from those estimates. Significant assumptions are required in the valuation
of proved oil and gas reserves, which as described above may affect the
amount at which oil and gas properties are recorded. It is at least
reasonably possible those estimates could be revised in the near term and
those revisions could be material.
Unaudited Information
The balance sheet as of June 30, 1997 and the statements of operations for
the six month periods ended June 30, 1997 and 1996 were taken from the
Company's books and records without audit. However, in the opinion of
management, such information includes all adjustments which are necessary
to properly reflect the financial position of the Company as of June 30,
1997 and the results of its operations for the six months ended June 30,
1997 and 1996.
2. RELATED PARTY TRANSACTIONS
During 1996, the Company acquired an oil and gas well from its majority
stockholder for $44,000. As partial consideration, the Company retired a
note receivable from the stockholder of $38,000, which had arisen from a
cash advance in 1994.
At December 31, 1996 and 1995, the Company had a liability to its majority
stockholder of $22,158 and $4,392, respectively, for past salary and
accrued bonuses. There was no balance due at June 30, 1997.
At June 30, 1997 and December 31, 1996, the Company had a liability to a
company controlled by its majority stockholder of $ 0 and $5,575,
respectively, for financial services rendered.
The Company rents office space from its majority stockholder. The terms of
the lease are disclosed in Note 6.
At December 31, 1995, the Company had non-interest bearing advances to its
majority stockholder of $3,492.
F-8
<PAGE>
BASS PETROLEUM, INC.
NOTES TO FINANCIAL STATEMENTS
(The period subsequent to December 31, 1996 isunaudited.)
At December 31, 1996 and 1995, the Company had a note payable to a
stockholder in the amount of $13,000 and $28,000, respectively, as
described in Note 4. There was no balance due at June 30, 1997.
3. ADVANCES FROM GAS PURCHASER
During 1995, the Company received overpayments from a gas purchaser. The
Company and the purchaser agreed that the overpayment of approximately
$128,000 would be repaid without interest in an amount of $10,000 per month
beginning in December 1995. This liability was completely paid in 1996.
4. LONG-TERM DEBT
Long-term debt at December 31, 1996 and 1995 consisted of the following:
<TABLE>
<S> <C> <C>
1996 1995
--------- ---------
Line of credit with a bank, interest at prime plus 1% (9.25% at December 31,
1996), monthly payments of principal of $12,500 plus accrued interest, beginning
in March 1997, until paid in full. This note is collateralized by oil and gas
properties and is guaranteed by the
majority stockholder of the Company [A] $ 256,140 $ --
Note payable to a bank, interest at prime plus 2% (10.25% at December 31, 1996),
monthly payments of interest, with principal due at maturity in April 1997. This
note is collateralized by a certificate of deposit of
$100,000 held at the bank 100,000 --
--------- ----------
Note payable to a bank, interest at prime plus 2%, monthly payments of principal
and interest of $10,870. This note was paid in full in December
1996 -- 173,913
Note payable to a company, non-interest bearing with interest imputed
at 10%, and monthly payments of principal and interest of $10,000. This
note was paid in full in December 1996 -- 149,212
--------- ---------
Unsecured note payable to a stockholder, interest at 25%, payable
monthly; principal is due in monthly payments of $4,600 beginning in
September 1996 until maturity in February 1997 13,000 28,000
--------- ---------
Note payable to a bank, interest at 10.25%, monthly payments of
principal and interest of $493 until maturity in December 2000. This
note is collateralized by a truck 19,290 23,145
--------- ---------
Note payable to a commercial lender, interest at 6.9%, monthly
payments of principal and interest of $433 until maturity in November
1997. This note is collateralized by a truck 4,583 8,415
--------- ---------
Total 393,013 382,685
--------- ---------
Less current portion (246,707) (267,687)
--------- ---------
$ 146,306 $ 114,998
========= ==========
</TABLE>
[A] The total amount available on this line of credit is $500,000. Draws
may be made on the facility until March 1, 1997 when principal repayment
begins.
F-9
<PAGE>
BASS PETROLEUM, INC.
NOTES TO FINANCIAL STATEMENTS
(The period subsequent to December 31, 1996 is unaudited.)
Maturities of long-term debt based on contractual requirements for the
years ending December 31, 1997 through 2000 are as follows:
1997 $ 246,707
1998 135,707
1999 5,058
2000 5,541
-----------
$ 393,013
5. GAIN ON SALES OF ASSETS
During the years ended December 31, 1996 and 1995, the Company recognized
gains on sales of oil and gas leases and equipment of $22,945 and $13,957,
respectively. Additionally, during the year ended December 31, 1996, the
Company recognized a gain of $2,500 on the sale of a Company vehicle.
6. ENVIRONMENTAL ISSUES
The Company is engaged in oil and gas exploration and production business
and may become subject to certain liabilities as they relate to
environmental clean up of well sites or other environmental restoration
procedures as they relate to the drilling of oil and gas wells and the
operation thereof. In the Company's acquisition of existing or previously
drilled well bores, the Company may not be aware of what environmental
safeguards were taken at the time such wells were drilled or during such
time the wells were operated. Should it be determined that a liability
exists with respect to any environmental clean up or restoration, the
liability to cure such a violation could fall upon the Company. No claim
has been made, nor is the Company aware of any liability which the Company
may have, as it relates to any environmental clean up, restoration or the
violation of any rules or regulations relating thereto.
7. COMMITMENTS
In August 1994, the Company entered into a lease agreement with the
majority stockholder of the Company to rent office space. The lease extends
through July 31, 1997 and automatically continues thereafter in successive
one year terms until either party terminates the lease with at least six
months written notice. The monthly rental is $650 until July 31, 1997, at
which time the monthly rental will be determined at the beginning of each
one year extension based on "market rates" as agreed to between the
landlord and tenant. Rent expense was $4,550 each of the six months ended
June 30, 1997 and 1996, and $7,800 for each of the years ended December 31,
1996 and 1995.
As of June 30, 1997 and December 31, 1996, the Company has a $20,000 open
letter of credit in favor of the State of Wyoming as a plugging bond. The
letter of credit is collateralized by a certificate of deposit in the same
amount.
F-10
<PAGE>
BASS PETROLEUM, INC.
NOTES TO FINANCIAL STATEMENTS
(The period subsequent to December 31, 1996 is unaudited.)
8. CONCENTRATION OF RECEIVABLES AND SALES REVENUE
The Company has the following concentrations in volume of oil and gas sales
revenue:
Customer 1996 1995
-------- ------ -----
A 38% 43%
B 21% 16%
Additionally, the two customers above accounted for a total of 61% and 85%
of accrued oil and gas sales as of December 31, 1996 and 1995,
respectively.
9. ACQUISITION OF ENERGY PRODUCTION COMPANY
In May 1997, the Company acquired an 81% interest in Energy Production
Company (EPC), an inactive public company. The Company acquired
approximately 54% of EPC from EPC's controlling shareholder for $45,000 and
approximately 29% of EPC in the form of newly issued common shares, in
exchange for two oil and gas properties with a cost basis of $23,500, and
$5,000 in cash. The $45,000 cash payment has been charged against
operations as EPC had no identifiable assets at the time of acquisition.
The oil and gas properties that were contributed into EPC continue to be
carried at their historical book value. The accounts of EPC are
consolidated with those of the Company beginning May 1997. No pro forma
financial statements have been prepared to reflect the results of
operations as if EPC had been acquired at the beginning of the period,
because EPC's operations were not material.
In October 1997, EPC and the Company rescinded the sale of 29% of EPC's
common stock to the Company. The Company returned the shares to EPC in
exchange for return of the purchase price. After returning the shares, the
Company owned 54% of EPC.
From 1980 to 1986, EPC was engaged in the acquisition, development and
operations of oil and gas properties. In December 1996, EPC began to divest
its remaining oil and gas assets and operations and has been relatively
inactive since that time with no significant operating revenues or
operations. Since 1986, the only assets of EPC have been cash and related
party receivables. EPC had a substantial accumulated deficit as of the
acquisition date.
10. SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)
The following table sets forth certain information with respect to the oil
and gas producing activities of the Company:
<TABLE>
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31,
---------------------------
1996 1995
Costs incurred in oil and gas producing activities:
Acquisition of proved properties $ 179,091 $ 546,297
Development costs 11,069 8,713
--------- ---------
Total costs incurred $ 190,160 $ 555,010
========= =========
Net capitalized costs related to oil and gas producing activities:
Proved properties $ 873,983 $ 722,798
Less accumulated depletion, depreciation and amortization (196,355) (113,143)
--------- ---------
Net oil and gas property costs $ 677,628 $ 609,655
========= =========
</TABLE>
F-11
<PAGE>
BASS PETROLEUM, INC.
NOTES TO FINANCIAL STATEMENTS
(The period subsequent to december 31, 1996 is unaudited.)
Thefollowing table, based on information prepared by independent petroleum
engineers, summarizes changes in the estimates of the Company's net
interest in total proved reserves of crude oil and condensate and natural
gas, all of which are domestic reserves:
Oil Gas
(Barrels) (MCF)
Balance, January 1, 1995 66,817 312,070
Purchase of minerals in place 32,030 266,136
Revisions of previous estimates 17,917 50,941
Production (15,276) (67,907)
-------- --------
Balance, December 31, 1995 101,488 561,240
Purchase of minerals in place 55,361 26,733
Sale of minerals in place (2,947) (48,975)
Revisions of previous estimates 17,509 (19,828)
Production (18,897) (65,297)
-------- --------
Balance, December 31, 1996 152,514 453,873
======== ========
The foregoing reserves are all classified as proved developed at December
31, 1996 and 1995. Proved oil and gas reserves are the estimated quantities
of crude oil, condensate and natural gas 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 developed oil and gas reserves are reserves that can be
expected to be recovered through existing wells with existing equipment and
operating methods. The above estimated net interests in proved reserves are
based upon subjective engineering judgments and may be affected by the
limitations inherent in such estimation. The process of estimating reserves
is subject to continual revision as additional information becomes
available as a result of drilling, testing, reservoir studies and
production history. There can be no assurance that such estimates will not
be materially revised in subsequent periods.
11. STANDARDIZED MEASURE OF CHANGES IN FUTURE NET REVENUES (UNAUDITED)
The standardized measure of discounted future net cash flows at December
31, 1996 and 1995, relating to proved oil and gas reserves is set forth
below. The assumptions used to compute the standardized measure are those
prescribed by the Financial Accounting Standards Board and, as such, do not
necessarily reflect the Company's expectations of actual revenues to be
derived from those reserves nor their present worth. The limitations
inherent in the reserve quantity estimation process are equally applicable
to the standardized measure computations since these estimates are the
basis for the valuation process.
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995
----------- -----------
Future cash inflows $ 3,607,000 $ 2,403,000
Future development and production costs (1,784,000) (846,000)
----------- -----------
Future net cash flows, before income tax 1,823,000 1,557,000
Future income taxes (388,000) (324,000)
----------- -----------
Future net cash flows 1,435,000 1,233,000
10% annual discount (463,000) (383,000)
----------- -----------
Standardized measure of discounted future
net cash flows $ 972,000 $ 850,000
=========== ===========
F-12
<PAGE>
BASS PETROLEUM, INC.
NOTES TO FINANCIAL STATEMENTS
(The period subsequent to december 31, 1996 is unaudited.)
Future net cash flows were computed using year-end prices and costs, and
year-end statutory tax rates (adjusted for permanent differences) that relate to
existing proved oil and gas reserves at year end. The following are the
principal sources of change in the standardized measure of discounted future net
cash flows:
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995
---------- ----------
Sale of oil and gas produced, net of production costs $(310,000) $(283,000)
Purchase of minerals in place 422,000 402,000
Sale of minerals in place (37,000) --
Net changes in prices and production costs 80,000 177,000
Revisions and other (74,000) 63,000
Accretion of discount 85,000 50,000
Net change in income taxes (44,000) (54,000)
--------- ---------
Net change 122,000 355,000
Balance, beginning of year 850,000 495,000
--------- ---------
Balance, end of year $ 972,000 $ 850,000
========= =========
F-13
<PAGE>
BASS PETROLEUM, INC. AND ENERGY PRODUCTION COMPANY
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following pro forma financial statements have been prepared as if the
following transactions had occurred at the beginning of the respective periods
presented (with respect to the pro forma income statements) and as of June 30,
1997 (with respect to the balance sheet):
1) The acquisition of approximately 54% of the outstanding common stock of EPC
by Bass, which occurred in May 1997.
2) The proposed acquisition of 100% of the common stock of Bass by EPC in
exchange for 4,000,000 newly issued unregistered common shares (after a 75
to 1 reverse split).
The pro forma financial statements should be read in conjunction with the
historical financial statements of Bass presented herein and should not be
considered to be a representation of actual results that would have occurred if
the transactions had occurred on the specified dates.
F-14
<PAGE>
BASS PETROLEUM, INC. AND ENERGY PRODUCTION COMPANY
UNAUDITED PRO FORMA BALANCE SHEET
JUNE 30, 1997
ASSETS
------
<TABLE>
<S> <C> <C> <C>
PRO FORMA PRO FORMA
BASS ADJUSTMENTS BASS
---- ----------- ---------
CURRENT ASSETS:
Cash $ 12,173 $ -- $ 12,173
Certificate of deposit pledged 20,000 -- 20,000
Trading securities 2,880 -- 2,880
Accounts receivable:
Oil and gas sales 100,380 -- 100,380
Joint interest billings, no allowance for doubtful accounts
considered necessary 47,289 -- 47,289
Prepaid expenses 1,635 -- 1,635
----------- ------------- -----------
Total current assets 184,357 -- 184,357
PROPERTY AND EQUIPMENT:
Oil and gas properties (successful efforts method)
Leasehold costs 951,289 -- 951,289
Lease and well equipment 92,551 -- 92,551
Furniture and equipment 28,526 -- 28,526
Transportation equipment 69,080 -- 69,080
Less accumulated depletion and depreciation (298,196) -- (298,196)
----------- ------------- -----------
Net property and equipment 843,250 -- 843,250
Other asset 5,000 -- 5,000
-------------- -----------
Total assets $ 1,032,607 $ -- $ 1,032,607
=========== ============== ===========
</TABLE>
Continued
F-15
<PAGE>
BASS PETROLEUM, INC. AND ENERGY PRODUCTION COMPANY
UNAUDITED PRO FORMA BALANCE SHEET, continued
JUNE 30, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<S> <C> <C> <C>
PRO FORMA PRO FORMA
BASS ADJUSTMENTS BASS
CURRENT LIABILITIES:
Current portion of long-term debt $ 283,208 $ -- $ 283,208
Accounts payable and accrued expenses 112,612 -- 112,612
Oil and gas revenues payable 120,652 -- 120,652
Federal income taxes payable 41,022 -- 41,022
----------- ----------- -----------
Total current liabilities 557,494 557,494
LONG-TERM DEBT, net of current portion 100,000 100,000
STOCKHOLDERS' EQUITY:
Common stock, par value $.01, 4,412,824 shares outstanding on
pro forma basis 128,038 (83,910)(1) 44,128
Additional paid-in capital -- 83,910 (1) 83,910
Retained earnings 247,075 -- 247,075
----------- ----------- -----------
Total stockholders equity 375,113 -- 375,113
----------- ----------- -----------
Total liabilities and stockholders' equity $ 1,032,607 $ -- $ 1,032,607
=========== =========== ===========
</TABLE>
(1) Adjustment to restate Bass' equity under the EPC capital structure
See accompanying introduction to pro forma financial statements.
F-16
<PAGE>
BASS PETROLEUM, INC. AND ENERGY PRODUCTION COMPANY
UNAUDITED PRO FORMA INCOME STATEMENT
SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<S> <C> <C> <C> <C>
PRO FORMA
BASS EPC ADJUSTMENTS COMBINED
---- --- ----------- --------
REVENUE:
Oil and gas sales $ 287,025 $ -- $ -- $ 287,025
Well operation and pumping fees 90,826 -- -- 90,826
Other 2,000 -- -- 2,000
----------- ----------- ----------- -----------
Total revenue 379,851 -- -- 379,851
COSTS AND EXPENSES:
Production expense 87,712 -- -- 87,712
Depletion and depreciation 55,500 -- -- 55,500
General and administrative 144,161 26,507 (4,865)(2) 165,803
---------- ----------- ----------- -----------
Total costs and expenses 287,373 26,507 (4,865) 309,015
OTHER INCOME (EXPENSE):
Gain on sale of assets -- --
Interest income (expense), net (12,765) 833 -- (11,932)
Acquisition expenses (45,000) -- -- (45,000)
Miscellaneous 2,781 -- -- 2,781
----------- ------------ ----------- -----------
Total other income (54,984) 833 -- (54,151)
INCOME BEFORE INCOME TAXES 37,494 (25,674) -- 16,685
INCOME TAX PROVISION, CURRENT 24,000 -- (8,580)(1) 15,420
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 13,494 $ (25,674) $ (13,445) $ 1,265
=========== =========== =========== ===========
EARNINGS PER SHARE *
-----------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 5,000,000
===========
</TABLE>
(1) Adjustment to reduce the income tax provision for the effect of EPC's net
loss.
(2) Adjustment to eliminate EPC general and administrative expenses reflected
on Bass' income statement.
* Less than $.01 per share.
See accompanying introduction to pro forma financial statements.
F-17
<PAGE>
BASS PETROLEUM, INC. AND ENERGY PRODUCTION COMPANY
UNAUDITED PRO FORMA INCOME STATEMENT
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C> <C> <C> <C>
PRO FORMA
BASS EPC ADJUSTMENTS COMBINED
------ ----- ----------- --------
REVENUE:
Oil and gas sales $ 432,383 $ -- $ -- $ 432,383
Well operation and pumping fees 213,022 -- -- 213,022
Other 3,314 -- -- 3,314
----------- ----------- ------------ -----------
648,719 -- -- 648,719
COSTS AND EXPENSES:
Production expense 122,862 -- -- 122,862
Depletion and depreciation 103,336 -- -- 103,336
General and administrative 251,660 2,398 -- 254,058
----------- ----------- ------------ -----------
Total costs and expenses 477,858 2,398 -- 480,256
OTHER INCOME (EXPENSE):
Gain on sale of assets 25,445 -- -- 25,445
Interest income (expense), net (35,773) 2,000 -- (33,773)
Miscellaneous 1,621 -- -- 1,621
----------- ------------ ------------ -----------
Total other income (8,707) 2,000 -- (6,707)
----------- ------------ ------------ -----------
INCOME BEFORE INCOME TAXES 162,154 (398) -- 161,756
INCOME TAX PROVISION, CURRENT 47,022 -- -- 47,022
----------- ------------ ----------- -----------
NET INCOME (LOSS) $ 115,132 $ (398) $ -- $ 114,734
=========== =========== ============ ===========
EARNINGS PER SHARE $ .02
-----------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 5,000,000
===========
</TABLE>
See accompanying introduction to pro forma financial
statements.
F-18
<PAGE>
EXHIBIT "C"
ARTICLE 113
Dissenters' Rights
PART 1
Right of Dissent--Payment for Shares
7-113-101 DEFINITIONS.--For purposes of this article:.
(1) "Beneficial shareholder" means the beneficial owner of shares held in a
voting trust or by a nominee as the record shareholder.
(2) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action, or the surviving or acquiring domestic or foreign
corporation, by merger or share exchange of that issuer.
(3) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under section 7-113-102 and who exercises that right at the
time and in the manner required by part 2 of this article.
(4) "Fair value", with respect to a dissenter's shares, means the value of
the shares immediately before the effective date of the cor,oorate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action except to the extent that exclusion would
be inequitable.
(5) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at the legal rate as
specified in section 5-12-101, C.R.S.
(6) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares
that are registered in the name of a nominee to the extent such owner is
recognized by the corporation as the shareholder as provided in section
7-107-204.
(7) "Shareholder" means either a record shareholder or a beneficial
shareholder.
7-113-102 RIGHT TO DISSENT.~1) A shareholder, whether or not entitled to
vote, is entitled to dissent and obtain payment of the fair value of I the
shareholder's shares in the event of any of the following corporate actions:
(a) Consummation of a plan of merger to which the corporadon is a party
if:
(I) Approval by the shareholders of that corporadon is required for the
merger by secdon 7-111-103 or 7-111-104 or by the articles of incorporadon; or
(I1) The corporation is a subsidiary that is merged with its parent
corporation under secdon 7-11 1-104;
(b) Consummation of a plan of share exchange to which the corporadon is a
party as the corporation whose shares will be acquired;
(c) Consummation of a sale, lease, exchange, or other disposidon of all, or
substantially all, of the property of the corporation for which a shareholder
vote is required under section 7-112-102 (1); and
(d) Consummation of a sale, lease, exchange, or other disposidon of all, or
substantially all, of the property of an entity controlled by the corporation if
the shareholders of the
ss.7-113-102
<PAGE>
76--Corp. COLORADO Business Corporation Act 10-1-96
corporation were entitled to vote upon the consent of the corporation to the
disposition pursuant to section 7-112-102 (2).
(1.3) A shareholder is no, entitled to dissent and obtain payment, under
subsection (I ) of this section, of thefair value of the shares of any c/ass or
series of shares which either were listed on a national securities exchange
registered under the federal "Securities Exchange Act of 1934", as amended, or
on the national market system of the National Association of Securities Dealers
Automated Quotation System, or were held of record by more than two thousand
shareholders, at the time of:
(a) The record date fixed under section 7-107-107 to determine the
shareholders entitled to receive notice of the shareholders" meeting at which
the corporate action is submitted to a votc;
(b) The record date fixed under section 7-107-104 to determine shareholders
entitled to sign writings consenting to the corporate action; or
(c) The effective date of the corporate action if the corporate action is
authorized other than by a vote of shareholders.
(1.8) The limitation set forth in subsection (1.3) of this section shall
not apply if the shareholder will receive for the shareholder's shares, pursuant
to the corporate aaion, anything except:
(a) Shares of the corporation surviving the consummation of the plan of
merger or share exchange;
(b) Shares of any other corporation which at the effective date of the plan
of merger or share exchange either will be listed on a national securities
exchange registered under the federal "Securities Exchange Act of 1934", as
amended, or on the national market system of the National Association of
Securities Dealers Automated Quotation System, or will be held of record by more
than two thousand shareholders
(c) Cash in lieu offractional shares; or
(d) Any combination of the foregoing described shares or cash in lieu of
fractional shares.
(2) 2
(2.5)A shareholder, whether or not entitled to vote, is entitled to dissent
and obtain payment of the fair value of the shareholder's shares in the event of
a reverse split that reduces the number of shares owned by the shareholder to a
fraction of a share or to scrip if the fractional share or scrip so created is
to be acquiredfor cash or the scrip is to be voided under section 7-106-104.
(3) A shareholder is entitled to dissent and obtain payment of the fair
value of the shareholder's shares in the event of any corporate action to the
extent provided by the bylaws or a resoludon of the board of directors.
(4) A shareholder entitled to dissent and obtain payment for the
shareholder's shares under this article may not challenge the corporate action
creating such entitlement unless the action is unlawful or fraudulent with
respect to the shareholder or the corporation. (Last amended by H.B. 96-1285, L.
'96, eff. 6-1-96.)
- ---------
H.B. 96 1285, L. '96, eff. 6-1-96, added matter in italic and deleted "his
or her" and 2 A shareholder, whether or not entitled to vote, is entitled to
dissent and obtain payment of the fair value of the shareholder's shares in the
event of:
(a) An amendment to the articles of incorporation that materially and
adverseb affects rights h respect of the shares because it:
(I) Alters or abolishes a preferential right of the shares; or
(II) Creates, atters, or abolishes a right h respect of redemption of the
shares, hcludhg a provision respecting a sinking fund for their redemption or
repurchase; or
(b) An amendment to the articles of incorporation that affects rights in
respect of the shares because it:
(I) Excludes or limits the right of the shares to vote on any matter, or to
cumulate votes, other than a limitation by dilution through issuance of shares
or other securities with similar voting rights; or
(II) Reduces the number of shares owned by the shareholder to a fraction of
a share or to scrip if the fractional share or scrip so created is to be
acquired for cash or the scrip is to be voided under secdon 7-106 104."
<PAGE>
0-1-96 COLORADO Business Corporation Act Corp.--77
7-113-103 DISSENT BY NOMINEES AND BENEFICIAL OWNERS. -( 1) A record
shareholder may assert dissenters'rights as to fewer than all the shares
registered in the record shareholder's name only if the record shareholder
dissents with respect to all shares beneficially owned by any one person and
causes the corporation to receive wrinen notice which states such dissent and
the name, address, and federal taxpayer identification number, if any, of each
person on whose behalf the record shareholder asserts dissenters'rights. The
rights of a record shareholder under this subsection (1) are determined as if
the shares as to which the record shareholder dissents and the other shares of
the record shareholder were registered in the names of different shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to the shares
held on the beneficial shareholder's behalf only if:
(a) The beneficial shareholder causes the corporation to receive the record
shareholder's | wrinen consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights; and
(b) The beneficial shareholder dissents with respect to all shares
beneficially owned by the beneficial shareholder.
(3) The corporation may require that, when a record shareholder dissents
with respect to the shares held by any one or more beneficial shareholders, each
such beneficial shareholder must cerdfy to the corporation that the beneficial
shareholder and the record shareholder or ! record shareholders of all shares
owned beneficially by the beneficial shareholder have asserted, or will timely
assert, dissenters'rights as to all such shares as to which there is no
limitadon on the ability to exercise dissenters' rights. Any such ~quirement
shall be stated in the dissenters' notice given pursuant to section 7-113-203.
PART 2
Procedure for Exercise of Dissenters' Rights
7-113-201 NOTICE OF DISSENTERS' RIGHTS. (I) If a proposed corporate action
creating dissenters' rights under section 7-113-102 is submitted to a vote at a
share holders' meeting, the notice of the meeting shall be given to all
shareholders, whether or not entitled to vote. The notice shall state that
shareholders are or may be entitled to assert dissenters" rights under this
article and shall be accompanied by a copy of this article and the materials, if
any, that, under articles 101 to 117 of this title, are required to be given to
shareholders entitled to vote on the proposed action at the meeting. Failure to
give nodce as provided by this subsection ( I ) ~ shall not affect any action
taken at the shareholders' meedng for which the notice was to have been given,
but any shareholder who was entitled to dissent but who was not given such
notice shall not be precluded from demanding payment for the shareholder's
shares under this article by reason of the shareholder's failure to comply with
the provisions of section 7-113-202(1).
(2) If a proposed corporate action creating dissenters'rights under section
7-113-102 is authorized without a meeting of shareholders pursuant to section
7-107-104, any wrinen or oral solicitation of a shareholder to execute a writing
consenting to such action contemplated in section 7-107-104 shall be accompanied
or preceded by a wrinen nodce stating that shareholders are or may be entitled
to assert dissenters'rights under this article, by a copy of this ardcle, and by
the materials, if any, that, under articles 101 to 117 of this title, would have
been required to be given to shareholders entitled to vote on the proposed
action if the proposed action were submitted to a vote at a shareholders"
meeting. Failure to give notice as provided by this subsection (2) ~ shall not
affect any action taken pursuant to section 7-107-104 for which the notice was
to have been given, but any shareholder who was entitled to dissent but who was
not given such notice shall not be precludedirom demanding payment for the
shareholder's shares under this article by reason of the shareholder's failure
to comply with the provisions of section 7-113-202(2). (Last amended by H.B.
96-1285, L. '96, eff. 6-1-96.)
<PAGE>
7-113-202 NOTICE OF INTENT TO DEMAND PAYMENT. -(1) If a proposed corporate
action creating dissenters'rights under section 7-113-102 is submitted to a vote
at a shareholders" meeting and if notice of dissenters'rights has been given to
such shareholder in connection with the action pursuant to section 7-113-201(1),
a shareholder who wishes to assert dissenters'rights shall:
(a) Cause the corporation to receive, before the vote is taken, written
notice of the shareholder's intention to demand payment for the shareholder's
shares if the proposed corporate action is effectuated; and
(b) Not vote the shares in favor of the proposed corporate action.
(2) If a proposed corporate action creating dissenters'rights under section
7-113-102 is authorized without a meeting of shareholders pursuant to section
7-107-104 and if notice of dissenters" rights has been given to such shareholder
in connection with the action pursuant to section 7-113-201(2) a shareholder who
wishes to assert dissenters' rights shall not execute a writing consenting to
the proposed corporate action.
(3) A shareholder who does not satisfy the requirements of subsection (1)
or (2) of this section is not entitled to demand payment for the shareholder's
shares under this article. (Last amended by H.B. 96-1285, L. '96, eff. 6-1-96.)
- --------
H.B. 96-1285, L. '96, eff. 6-1-96, added matter in italic.
7-113-203 DISSENTERS' NOTICE. - I) If a proposed corporate action creating
dissenters' rights under section 7-113-102 is authorized, the corporation shall
give a written dissenters' notice to all shareholders who are entitled to demand
payment for their shares under this article.
(2) The dissenters' notice required by subsection (1) of this section shall
be given no later than ten days after the effective date of the corporate action
creating dissenters' rights under section 7-ll3-102 and shall:
(a) State that the corporate action was authorized and state the effective
date or proposed effective date of the corporate action;
(b) State an address at which the corporation will receive payment demands
and the address of a place where certificates for certificated shares must be
deposited;
<PAGE>
10-1-96 COLORADO Business Corporation Act Corp.--79
(c) Inform holders of uncertificated shares to what extent transfer of the
shares will be restricted after the payment demand is received;
(d) Supply a form for demanding payment, which form shall request a
dissenter to state an address to which payment is to be made;
(e) Set the date by which the corporation must receive the payment demand
and certificates for certificated shares, which date shall not be less than
thirty days after the date the notice required by subsection (1) of this section
is given;
(f) State the requirement contemplated in section 7-113-103 (3), if such
requirement is imposed; and
(g) Be accompanied by a copy of this article.
7-113-204 PROCEDURE TO DEMAND PAYMENT.--(I) A shareholder who is given a
dissenters' notice pursuant to section 7-113-203 and who wishes to assert
dissenters' rights shall, in accordance with the terms of the dissenters'
notice:
(a) Cause the corporation to receive a payment demand, which may be the
payment demand form contemplated in section 7-113-203 (2) (d), duly completed,
or may be stated in another writing; and
(b) Deposit the shareholder's certificates for certificated shares.
(2) A shareholder who demands payment in accordance with subsecdon (1) of
this section retains all rights of a shareholder, except the right to transfer
the shares, until the effective date of the proposed corporate action giving
rise to the shareholder's exercise of dissenters' rights and has only the right
to receive payment for the shares after the effective date of such corporate
action.
(3) Except as provided in section 7-113-207 or 7-113-209 (1) (b), the
demand for I payment and deposit of certificates are irrevocable.
(4) A shareholder who does not demand payment and deposit the shareholder's
share certificates as required by the date or dates set in the dissenters'
notice is not entitled to payment for the shares under this article.
7-113-205 UNCERTIFICATED SHARES. - I) Upon receipt of a demand for payment
under section 7-113-204 from a shareholder holding uncertificated shares, and in
lieu of the deposit of certificates representing the shares, the corporation may
restrict the transfer thereof.
(2) In all other respects, the provisions of section 7-113-204 shall be
applicable to shareholders who own uncertificated shares.
7-113-206 PAYMENT.--(1) Except as provided in section 7-113-208, upon the
effective date of the corporate action creating dissenters' rights under section
7-113-102 or upon receipt of a payment demand pursuant to section 7-113-204,
whichever is later, the corporation shall pay each dissenter who complied with
section 7-113-204, at the address stated in the payment demand, or if no such
address is stated in the payment demand, at the address shown on the
corporation's current record of shareholders for the record shareholder holding
the dissenter's shares, the amount the corporation estimates to be the fair
value of the dissenter's shares, plus accrued interest.
(2) The payment made pursuant to subsection (1) of this section shall be
accompanied by:
(a) The corporation's balance sheet as of the end of its most recent fiscal
year or, if that is not available, the corporation's balance sheet as of the end
of a fiscal year ending not more than sixteen months before the date of payment,
an income statement for that year, and, if the corporation customarily provides
such statements to shareholders, a statement of changes in shareholders' equity
for that year and a statement of cash flow for that year, which balance ! sheet
and statements shall have been audited if the corporation customarily provides
audited financial statements to shareholders, as well as the latest available
financial statements, if any, for the interim or full-year period, which
financial statements need not be audited;
(b) A statement of the corporation's estimate of the fair value of the
shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's right to demand payment under section
7-113-209; and
(e) A copy of this article.
1998 Aspen Law & Business, A Division of Aspen Publishers, Inc. ss.7-113-206
<PAGE>
80--Corp. COLORADO Business Corporation Act 10 -1-96
7-113-207 FAILURE TO TAKE ACTION.--(1) If the effective date of the
corporate action creating dissenters'rights under section 7-113-102 does not
occur within sixty days after the date set by the corporation by which the
corporation must receive the payment demand as provided in section 7-113-203,
the corporation shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares.
(2) If the effective date of the corporate action creating dissenters'
rights under section 7-113-102 occurs more than sixty days after the date set by
the corporation by which the corporation must receive the payment demand as
provided in section 7-113-203, then the corporation shall send a new dissenters'
notice, as provided in section 7-113-203, and the provisions of sections
7-113-204 to 7-113-209 shall again be applicable.
7-113-208 SPECIAL PROVISIONS RELATING TO SHARES ACQUIRED AFTER ANNOUNCEMENT
OF PROPOSED CORPORATE ACTION.--(1) The corporation may, in or with the
dissenters' notice given pursuant to section 7-113-203, state the date of the
first announcement to news media or to shareholders of the terms of the proposed
corporate action creating dissenters' rights under section 7-113-102 and state
that the dissenter shall certify in writing, in or with the dissenter's payment
demand under section 7- 113-204, whether or not the dissenter (or the person on
whose behalf dissenters' rights are asserted) acquired beneficial ownership of
the shares before that date. W~th respect to any dissenter who does not so
certify in writing, in or with the payment demand, that the dissenter or the
person on whose behalf the dissenter asserts dissenters' rights acquired
beneficial ownership of the shares before such date, the corporation may, in
lieu of making the payment provided in section 7-113-206, offer to make such
payment if the dissenter agrees to accept it in full satisfaction of the demand.
(2) An offer to make payment under subsection (1) of this section shall
include or be accompanied by the information required by section 7-113-206 (2).
7-113-209 PROCEDURE IF DISSENTER IS DISSATISFIED WITH PAYMENT OR OmR.~(I) A
dissenter may give notice to the corporation in writing of the dissenter's
estimate of the fair value of the dissenter's shares and of the amount of
interest due and may demand payment of such eshmate, less any payment made under
section 7-113-206, or reject the corporation's offer under section 7-113-208 and
demand payment of the fair value of the shares and interest due, if:
(a) The dissenter believes that the amount paid under section 7-113-206 or
offered under section 7-113-208 is less than the fair value of the shares or
that the interest due was incorrectly calculated;
(b) The corporation fails to make payment under section 7-113-206 within
sixty days after the date set by the corporation by which the corporation must
receive the payment demand; or
(c) Thc corporation does not retum the deposited certif~cates or release
the transfer restrictions imposed on uncertificated shares as required by
section 7-113-207 (1).
(2) A dissenter waives the right to demand payment under this secdon unless
the dissenter causes the corporation to receive the notice required by
subsection (1) of this section within thirty days after the corporation made or
offered payment for the dissenter's shares.
<PAGE>
10-1-96 COLORADO Business Corporation Act Corp. 81
PART 3
Judicial Appraisal of Shares
7-113-301 COURT ACTION.--(1) If a demand for payment under section 7-113209
remains unresolved, the corporation may, within sixty days after receiving the
payment demand, commence a proceeding and petition the court to determine the
fair value of the shares and accrued interest. If the corporation does not
commence the proceeding within the sixty-day period, it shall pay to each
dissenter whose demand remains unresolved the amount demanded.
(2) The corporation shall commence the proceeding described in subsecdon
(1) of this section in the district court of the county in this state where the
corporation's principal offce is located or, if (1) the corporation has no
principal office in this state, in the district court of the county in which its
registered office is located. If the corporation is a foreign corporation
without a registered office (2), it shall commence the proceeding in the
county(2) where the registered office of the domestic corporation merged into,
or whose shares were acquired by, the foreign corporation was located.
(3) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unresolved parties to the proceeding commenced
under subsection (2) of this section as in an action against their shares, and
all pardes shall be served with a I copy of the peddon. Service on each
dissenter shall be by registered or certified mail, to the l address stated in
such dissenter's payment demand, or if no such address is stated in the payment
demand, at the address shown on the corporadon's current record of shareholders
for the record shareholder holding the dissenter's shares, or as provided by
law.
(4) The jurisdiction of the court in which the proceeding is commenced
under subsecdon(2) of this secdon is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend a
decision on the quesdon of fair value. The appraisers have the powers described
in the order appoindng them, or in any amendment to such order. The parties to
the proceeding are entitled to the same discovery rights as pardes in other
civil proceedu~gs.
(5) Each dissenter made a party to the proceeding commenced under subsecdon
(2) of this section is entitled to judgment for the amount, if any, by which the
court finds the fair value of the dissenter's shares, plus interest, exceeds the
amount paid by thc corporadon, or for the fair value, plus interest, of the
dissenter's shares for which the corporation elected to withhold payment under
section 7-113-208. (Last amended by H.B. 96-1285, L. '96, eff.6-1-96.)
- ---------
H.B. 96-1285, L.96, eff. 6-1-96, added matter in italic and deleted "it" and
&'in this state'.
7-113-302 COURT COSTS AND COUNSEL FEES. - I) The court in an appraisal
proceeding commenced under section 7-113-301 shall determine all costs of the
proceeding, including the reasonable compensation and expenses of appraisers
appointed by the court. The court shall assess the costs against the
corporation; except that the court may assess costs against all or some of the
dissenters, in amounts the court finds equitable, to the extent the court finds
the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding
payment under section 7-113-209.
(2) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(a) Against the corporation and in favor of any dissenters if the court
finds the corporation did not substantially comply with the requirements of part
2 of this article; or
1998 Aspren Law & Business, A Division of Aspen Publishers, Inc. ss.7-113-302
<PAGE>
82--Corp. COLORADO Business Corporation Act 10-1-96
(b) Against either the Corportion or one or more dissenters, in favor of
any other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith with
respect to the rights provided by this article.
(3) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to said counsel reasonable fees to be paid out of the amounts awarded to
the dissenters who were benefitted.
<PAGE>
PROXY
ENERGY PRODUCTION COMPANY
SPECIAL MEETING OF SHAREHOLDERS
DECEMBER 17, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF ENERGY PRODUCTION
COMPANY. THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH
THE CHOICES SPECIFIED BELOW.
The undersigned shareholder of ENERGY PRODUCTION COMPANY (the "Company"), hereby
appoints Ray D. Reaves as such shareholder's true and lawful attorney, agent,
and proxy of the undersigned with full power of substitution for and in the name
of the undersigned, to vote all the shares of common stock, par value $0.01 per
share ("Common Stock"), of the Company, which the undersigned may be entitled to
vote at the Special Meeting of Shareholders of the Company, to be held at 1703
Edelweiss Drive, Cedar Park, TX 78613, on Wednesday, December 17, 1997 at 9:00
a.m., Central Daylight Savings Time, and any and all adjournments thereof, with
all of the powers which the undersigned would possess if personally present, for
the following purposes:
Please indicate For, Against or Abstain with respect to each of the following
matters:
<TABLE>
<S> <C> <C> <C>
For Against Abstain
1. To elect three (3) directors to hold office until their respective
successors have been duly elected and qualified (the Board of Directors
recommends a vote FOR each of the following director nominees):
- Ray D. Reaves [ ] [ ] [ ]
- Robert A. Manogue [ ] [ ] [ ]
- Robert D. Bryant [ ] [ ] [ ]
2. To approve a proposal to change the Company's name (the Board of
Directors recommends a vote FOR):
[ ] [ ] [ ]
3. To approve a 75-to-1 reverse stock split of the 30,961,778 shares of
Company Common Stock issued and outstanding (the Board of
Directors recommends a vote FOR): [ ] [ ] [ ]
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
For Against Abstain
4. To approve the acquisition by the Company of all of the issued and
outstanding shares of capital stock of Bass Petroleum, Inc. (the Board
of
Directors recommends a vote FOR): [ ] [ ] [ ]
5. To ratify the selection of Hein & Associates, L.L.P., as independent
auditors of the Company for the fiscal year ending December 31, 1997
(the Board
of Directors recommends a vote FOR): [ ] [ ] [ ]
</TABLE>
6. Other Matters:
In his discretion, the proxy is authorized to vote upon such other
business as may properly come before the meeting.
This Proxy will be voted for the choices specified. If no choice is specified
for Items 1, 2, 3, 4, and 5, this Proxy will be voted FOR these items. The
undersigned hereby acknowledges receipt of the Notice of Special Meeting and the
Proxy Statement furnished herewith.
PLEASE MARK, SIGN AND DATE THIS PROXY AND RETURN IN THE ENCLOSED ENVELOPE.
DATED: ----------------------------- ------------------------------------
(Signature)
------------------------------------
(Signature if jointly held)
------------------------------------
(Printed Name)
Please sign exactly as name
appears on stoc certificate(s).
Joint owners should sign each.
Trustees and others acting in a
representative capacity should
indicate the capacity in which
they sign.
This Proxy is limited to ________ shares.
