SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
Annual Report Pursuant to Section 13 or 15(d) of the Securities and Exchange
Act of 1934
For the fiscal year ended April 30, 1997
Commission File No. 0-9800
LYRIC ENERGY, INC.
(Exact Name of Registrant as specified in its charter)
COLORADO 75-1711324
(State or other jurisdiction of (I.R.S. Employer I.D. No.)
Incorporation or organization)
1013 West 8th Ave., Amarillo, Texas 79101
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(806) 376-5088
Securities registered pursuant to Section 12 (b) of the Act: N/A
Securities registered pursuant to Section 12 (g) of the Act:
$0.01 Par Value Common Stock
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (Or for such shorter period that the
Registrant was required to file such reports), and (2) Has been subject to
such filing requirements for the past 90 days: Yes X No ____
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB: Yes ____ No X
State Issuer's Revenues for the most recent fiscal year: $_____
State the aggregate market value of Registrant's voting $0.01 par value common
stock held by non-affiliates computed by reference to the price at which the
stock was sold, or the average bid and asked prices of such stock, as of a
specified date within the past 60 days. (See definition of affiliate in Rule
12b-2 of the Exchange Act). As of July 28, 1997, $10,000,000.
(ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes _____ No ______
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date. As of July 31, 1997, there
were 250,000,000 shares of the Registrant's $.01 par value common stock issued
and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
No documents are incorporated herein by reference.
Transitional Small Business Format (check one): Yes ___ No X
PART 1
ITEM 1. BUSINESS
NOTE: The registrant has entered into a letter of intent with Natural
Gas Technologies, Inc., a Texas corporation ("NGT"), for a share exchange
transaction. Such transaction is probable to occur, and upon consumption of
such transaction, the business of NGT will become the business of the
registrant. Accordingly, business, property, management and financial
disclosures for NGT are included with this report. The disclosures concerning
NGT are provided by management for NGT.
Lyric Energy, Inc. ("Lyric" or the "Company") was incorporated in
Colorado on April 25, 1980. On February 3, 1981, the Company completed a
registered public offering of 20,000,000 shares of its $.01 par value common
stock ("Common Stock"), and received gross proceeds of $2,000,000 therefrom.
The Company was an active oil and gas producing company from its inception
until July 31, 1991.
For the fiscal year ending April 30, 1991 the Company's net loss was
$360,791 and for 1990 and 1989 was $290,561 and $266,799, respectively. The
principal cause of the losses was the interest being accrued but not paid on
the Company's bank note with the Amarillo National Bank (the "Bank"). The
original principal of the Bank note was $1,815,869. By April 30, 1991
principal and unpaid interest had grown to $3,209,761. The Company was unable
to pay the interest.
Effective July 31, 1991 the Company entered into an agreement with the
Bank whereby the Company assigned to the Bank interest in certain oil and gas
producing properties having a present worth discounted at 10% of $297,600, and
(ii) 3,800,000 shares of the Company's Common Stock. In exchange, the Bank
cancelled all past due notes including accrued interest through July 31, 1991.
In addition the Company agreed to assign to the Bank small overriding royalty
interests in any wells the Company subsequently drilled on one proved
undeveloped oil property in Moore County, Texas, and on any oil and gas
subsequently drilled by the Company in the Thalia area of Foard County, Texas.
The Company did not drill any such wells.
The Company agreed to continue to operate the Okmulgee oil and casinghead
gas producing properties consisting of the properties in the Creek Indian
designated unit as designated by the Oklahoma Corporation Commission for a six
month period. At the end of that six month period the Company agreed with the
Bank that the Company would, if the production warranted, effectuate a
production payment with the Bank providing that the Bank would receive 75% of
the Company's revenue after expenses from the Creek Indian Unit until the Bank
received $100,000, or alternately the Company would sell the properties in the
unit and give to the Bank the proceeds of such sale. The Company subsequently
sold the Okmulgee oil and casinghead gas producing properties to an unrelated
third party and paid the proceeds to the Bank in accordance with this
agreement.
After assigning to the Bank the oil and gas producing properties
described above, the Company still had interests in some oil and gas
properties. All of those oil and gas properties subsequently were either
plugged and abandoned or ceased producing and expired by their own terms for
failure to develop or failure to produce. One property in Moore County, Texas,
was sold to an unrelated third party in exchange for an obligation by that
party to plug and abandon the wells at the appropriate time and to relieve the
Company of that obligation and a modest amount of cash which was not
sufficient to completely pay the outstanding obligations of that property at
the time of sale. The amount of such unpaid invoices were owed to Stahl
Petroleum Company, a company owned and controlled by the President of the
Company, which waived the payment of the balance due.
As a consequence of the foregoing transactions, the Company had no source
of cash flow or income and no properties of any value.
The Company is currently engaged in the business of attempting to
consummate an acquisition of an operating company in order to carry on the
business of the operating company. The Company has a letter of intent to
acquire NGT, which currently owns 81 percent of the Company's Common Stock.
See "Share Exchange Transaction."
Lyric's Plan of Operation
Lyric is currently focusing on the proposed transaction with NGT
described below. In the event that transaction does not proceed, the Company
will focus on the identification and evaluation of other prospective merger or
acquisition "target" entities including private companies, partnerships or
sole proprietorships.
Acquisition of Control and Share Exchange Transaction
The Company has entered into a letter of intent dated January 2, 1997 and
modified March 17, 1997 (the "Letter of Intent") with NGT for a share exchange
transaction ("Share Exchange"). The Letter of Intent become binding by the
March 17, 1997 amendment. The reason for the Share Exchange is to carry out
the Company's Plan of Operation to acquire an operating company. Prior to
entering into the Letter of Intent, the Company and NGT were unrelated and NGT
held no shares of the Company.
Pursuant to the Letter of Intent, NGT loaned the Company $100,000
pursuant to a non-interest bearing Convertible Promissory Note (the "Note").
The Note had a maturity date of December 31, 1997 and automatically converted
into 203,041,517 shares of the Company's Common Stock upon (i) the Company
coming into current compliance with the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and (ii) the Company obtaining a waiver from the
Bank of certain non-dilution rights in favor of the Bank. The Note converted
by its terms on April 10, 1997, which resulted in NGT obtaining a controlling
interest in the Company. Previously, no single person or voting group
controlled the Company. G.E. Stahl was the sole Director and approved the
transaction in that capacity. The source of the $100,000 was loans to NGT
from Brent Wagman and Warren Donohue, both officers and directors of NGT.
The Share Exchange will commence after the approval of the matters on the
agenda at a special meeting (the "Special Meeting") to be called for the
purpose of approving (i) a one share for 240.597 share (1 for 240.597) reverse
stock split of the Company's Common Stock;(ii) an amendment to the Company's
Articles of Incorporation to authorize 10,000,000 shares of no par value
preferred stock, 9,597 of which will be designed as Series 1994-A Preferred
Stock, 66,360 of which will be designated as Series 1994-B Preferred Stock and
the remainder to be reserved for future issuance in the discretion of the
Board of Directors; (iii) a change of the name of the Company to Natural Gas
Technologies, Inc.; (iv) an amendment to the Company's Articles of
Incorporation to eliminate the liability of Directors and Officers in certain
circumstances; and (v) an amendment to the Company's Articles of Incorporation
to reduce the voting requirement for certain fundamental corporate actions.
Each of these actions is being taken in connection with the Share Exchange.
By virtue of the shares acquired by NGT upon conversion of the Note, NGT holds
sufficient votes to assure shareholder approval of all of the matters on the
agenda. The Special Meeting will be called shortly after the Securities and
Exchange Commission approves the Information Statement to be sent to
shareholders in connection with the Special Meeting, which Information
Statement has been filed with the Commission.
The Share Exchange will take place in two stages. The first stage will
occur immediately after the Special Meeting and will consist of the exchange
of approximately 2,691,000 shares of the authorized but unissued post-reverse
split shares of the Company's Common Stock for 3,405,900 shares of NGT common
stock, which constitutes approximately 85 percent of the equity interests in
NGT. The NGT shares to be exchanged in the first stage are held by certain
officers, directors, affiliates and sophisticated investors. The Company will
control NGT upon completion of the first stage.
The second stage will occur upon the approval by NGT shareholders of the
exchange of the remaining NGT shares pursuant to an S-4 Registration Statement
and Proxy Statement which registers the exchange of all of the remaining
equity interests in NGT into shares of the authorized but unissued
post-reverse split Common Stock of the Company and further provides for the
distribution of the 843,908 post-reverse split shares of Common Stock issued
to NGT upon conversion of the Note to the shareholders of NGT immediately
prior to the Share Exchange. It is also contemplated that the shares issued
in the first stage of the Share Exchange will be registered for resale by such
registration statement. NGT has outstanding 9,597 shares of Series 1994-A
Preferred Stock and 66,360 shares of Series 1994-B Preferred Stock. These
preferred shares are non-voting and will be converted upon the second stage of
the Share Exchange into the same number of Series 1994-A and Series 1994-B
preferred shares of the Company. These shares are to be authorized and
designated at the Special Meeting. As of the date hereof, the Series 1994-A
shares of NGT have accrued an aggregate of $9,175 in dividends and the Series
1994-B shares of NGT have accrued an aggregate of $17,150 in dividends. These
amounts will become accumulated but unpaid dividends of the respective series
of preferred stock of the Company to be issued in the exchange. The Company
intends to surrender the NGT preferred shares it acquires in the Share
Exchange. Upon completion of the Share Exchange, the current shareholders of
the Company will hold approximately five percent of the total outstanding
shares of the Company and the shareholders of NGT will hold the remaining 95
percent, assuming conversion of the preferred shares to be issued in the Share
Exchange to common shares.
The material terms of the Note and the Share Exchange were negotiated and
agreed to by the Company and NGT prior to NGT obtaining control of the
Company. The terms were the result of arms' length negotiations between the
Company and NGT. In light of the independence of the companies at the time of
the negotiations and the Company's lack of assets and operations, the Board of
Directors determined that an independent valuation or fairness opinion would
offer very little support to the valuation of the transaction. Factors
considered in determining the amount of the Note and the percentage of shares
held by either party subsequent to all conversions were (i) funds necessary to
pay off the Company's debts, (ii) expenses to bring the Company's reports
current, (iii) the amount of debt to be forgiven, (iv) the market for the
Company's shares, (v) the inability of NGT to utilize the Company's loss
carryforward, and (vi) the relative value of the two businesses as determined
by each company's Board of Directors.
The Share Exchange is expected to be accounted for as a purchase. The
Share Exchange is structured as a tax-free reorganization and should not have
any tax consequences for the shareholders of the Company or NGT.
Under Colorado law, the Share Exchange may be effected by resolution of
the Board of Directors of the Company. Approval of the shareholders of the
Company is not required and Colorado law does not grant dissenter's rights to
the shareholders of the Company.
The Share Exchange remains conditional upon the completion of final
documentation therefor, but is probable to occur.
Competition
Upon acquisition of NGT, the Company will be engaging in the oil and gas
business. Competition in the oil and gas business is intense, particularly
with respect to the acquisition of producing properties, proved undeveloped
acreage and leases. Major and independent oil and gas companies actively bid
for desirable oil and gas properties and for the equipment and labor required
for their operation and development. Many of the Company's competitors will
have financial resources and exploration and development budgets that are
substantially greater than those of the Company, and these may adversely
affect the Company's ability to compete.
Regulation and Taxation
The Company's oil and gas business will be subject to various federal,
state and local laws and governmental regulations which may be changed from
time to time in response to economic or political conditions. Matters subject
to regulation include discharge permits for drilling operations, drilling
bonds, reports concerning operations, the spacing of wells, unitization and
pooling of properties, taxation and environmental protection. From time to
time, regulatory agencies have imposed price controls and limitations on
production by restricting the rate of flow of oil and gas wells below actual
production capacity in order to conserve supplies of oil and gas.
The Company's operations could result in liability for personal injuries,
property damage, oil spills, discharge of hazardous materials, remediation and
clean-up costs and other environmental damages. The Company could be liable
for environmental damages caused by previous property owners. As a result,
substantial liabilities to third parties or governmental entities may be
incurred, the payment of which could have a material adverse effect on the
Company's financial condition and results of operations. The Company intends
to maintain insurance coverage for its operations, including limited coverage
for sudden environmental damages, but does not believe that insurance coverage
for environmental damages that occur over time will be available at a
reasonable cost. Moreover, the Company does not believe that insurance
coverage for the full potential liability that could be caused by sudden
environmental damages will be available at a reasonable cost. Accordingly,
the Company may be subject to liability or may lose substantial portions of
its properties in the event of certain environmental damages. The Company
could incur substantial costs to comply with environmental laws and
regulations.
The Oil Pollution Act of 1990 imposes a variety of regulations on
"responsible parties" related to the prevention of oil spills. The
implementation of new, or the modification of existing, environmental laws or
regulations, including regulations promulgated pursuant to the Oil Pollution
Act of 1990, could have a material adverse impact on the Company.
The recent trend toward stricter standards in environmental legislation
and regulation is likely to continue. For instance, legislation has been
introduced in Congress that would reclassify certain exploration and
production wastes as "hazardous wastes" which would make the reclassified
wastes subject to much more stringent handling, disposal and clean-up
requirements. If such legislation were enacted, it could have a significant
impact on the operating costs of the Company, as well as the oil and gas
industry in general. Initiatives to further regulate the disposal of oil and
gas wastes are also pending in certain states, and these various initiatives
could have a similar impact on the Company.
Business of NGT
Natural Gas Technologies, Inc. is an energy company engaged in the
exploration, development, acquisition and production of crude oil and natural
gas. All of NGT's properties and its subsidiary's properties and operations
are currently located in the State of Texas. As of July 31, 1997, NGT had
estimated net proved reserves of approximately 1.544 MMBbls of oil and 196,404
Mcf of natural gas, or an aggregate of 1.577 MMBOE with a PV-10 Value of
$11.42 million.
From April 30, 1997 through July 31, 1997, NGT acquired estimated net
proved reserves of .383 MMBOE at an average cost of approximately $1.52 per
BOE. Average daily production increased from 15 BOE per day in the last
fiscal year ended April 30, 1997 to over 85 BOE per day as of July 31, 1997.
This major increase was due to the development drilling and acquisitions of
several properties in the last quarter of fiscal 1997. The Company added
a net of 0.853 MMBOE of estimated net proved reserves in its last fiscal year
representing an increase of 255% for the year at an average cost of $8.12 per
BOE.
NGT's Business Strategy
NGT's objective is to build shareholder value through consistent growth
in per share reserves, production and the resulting cash flow and earnings.
To accomplish this, NGT has targeted properties which are expected to produce
secondary recoveries of oil and gas through the use of new technologies,
waterfloods or additional drilling. These types of properties can usually be
acquired on more favorable terms than properties in primary production,
although lease operating costs for these properties are higher upon
acquisition than properties in primary production. From April 30, 1995 to
April 30, 1997, NGT's production declined from an average of 33.7 BOE per day
to 15 BOE per day. This was mainly due to a lack of available capital for
well reworks. Since January 31, 1997, NGT has been acquiring additional
properties and reworking its existing properties using cash invested by two of
NGT's directors and through issuances of NGT's common stock.
NGT has contracted with Wagman Petroleum, Inc. ("WPI") to operate its
properties. WPI is approximately 45 percent owned by Brent A. Wagman, NGT's
President. Mr. Wagman is also a director and president of WPI. See "Certain
Relationships and Related Transactions."
Petroleum Blending
In October 1996, NGT acquired a non-exclusive license to utilize a patent
for a blending process for manufacturing automobile fuel from natural gasoline
and octane enhancers (the "Patent"). Natural gasoline is the portion of
natural gas which is liquid at room temperature and pressure. The octane of
natural gasoline is too low and the vapor pressure too high for use alone in
standard automobile engines. The blending process incorporates other
hydrocarbons used as octane enhancers and vapor pressure stabilizers so the
fuel can be used in standard gasoline engines. A variety of hydrocarbons can
be used in the blend, including toluene, xylene and ethanol. The blended fuel
meets all current requirements for use as unleaded gasoline, but has not been
certified by the Environmental Protection Agency for marketing as an
alternative, clean burning fuel pursuant to the mandates of the Clean Air Act
of 1990, as amended. NGT believes that the fuel will qualify for such
certification, but certification will require independent tests which have yet
to be performed, and there can be no assurance that qualification will be
forthcoming.
NGT is currently negotiating to purchase a blending facility for the fuel
in Mobile, Alabama. NGT intends to use a majority-owned subsidiary to
purchase the blending facility and commence manufacturing. These activities
will require significant additional capital for the subsidiary, which is
expected to be raised from the public or private sale of NGT securities, bank
loans and private equity investments in the subsidiary. There can be no
assurance that such capital will be available on terms acceptable to NGT, and
accordingly, there can be no assurance that NGT will ever successfully market
this or any other alternative fuel.
NGT acquired its non-exclusive license right to manufacture and market an
alternative fuel using the process described in the Patent by an Assignment
dated October 11, 1996 from Mobile Americlean Ltd. I, a Florida limited
partnership ("MAL"). MAL in turn acquired its right by assignment of a
license agreement between Interstate Chemical, Inc., a Kentucky corporation
("ICI"), the patent holder, and Interstate I, a Kentucky limited partnership
("ILP"), the original licensee. ICI and ILP executed an Agreement of License
and Assignment dated December 29, 1989 (the "Original License Agreement")
granting ILP an exclusive license to practice the patent solely in Mobile,
Alabama. The Original License Agreement provided that the license was non-
transferable and provided for a royalty of three percent of gross sales.
In 1990, ICI and ILP negotiated a new license agreement (the "New License
Agreement") which provided for a non-exclusive, perpetual and transferable
license to ILP to practice the Patent anywhere in the world. The royalty rate
was also reduced to a variable percentage of gross sales based on the gross
margin received by ILP. The revised royalty is three percent of gross sales
at a gross margin greater than $.15 per gallon, two percent of gross sales at
a gross margin of $.10 to $.15 per gallon and one percent of gross sales at a
gross margin of less than $.10 per gallon.
Prior to execution of the New License Agreement, ICI became insolvent and
its board of directors and executive officers resigned. MAL obtained the
written consent of a majority of ICI's stockholders for ratification of the
New License Agreement and assignment thereof to MAL. MAL received an opinion
from its counsel that such shareholder consent gives MAL the right to
manufacture the blended gasoline covered by the New License Agreement and the
right to assign that right to NGT.
Counsel for NGT has advised NGT that such shareholder approval of the New
License Agreement may not be legally effective and that NGT may not rely upon
the Old License Agreement because of its non-tranferability. Nonetheless, NGT
has concluded that in light of the poor financial condition of ICI and the
apparent lack of alternatives to ICI for the royalty revenue, ICI is not
likely to challenge the validity of the New License Agreement. In the event
of such a challenge, NGT feels that it would be able to continue manufacturing
an alternative fuel product. However, in light of the legal uncertainty
concerning NGT's right to manufacture under the New License Agreement, there
can be no assurance that NGT will be able to go forward with its petroleum
blending operation.
See Item 10-- "Employment Agreement" for further information concerning
petroleum blending.
Employees
Lyric has one part-time, non-compensated employee, its President. Lyric's
President devotes a modest amount of time to the Company's business. Lyric
utilizes the secretaries and bookkeepers employed by Stahl Petroleum Company.
Stahl Petroleum Company is wholly-owned and controlled by G. E. Stahl, Lyric's
President.
As of July 31, 1997, NGT had four full-time employees.
ITEM 2. PROPERTIES
Lyric's Office Facilities
The Company's offices are located at 1013 West 8th Avenue, Amarillo,
Texas 79101, in space which the Company shares with Stahl Petroleum Company.
Stahl Petroleum Company is wholly-owned and controlled by G.E. Stahl. The
Company does not pay Stahl Petroleum Company for secretarial and accounting
services, office rent, miscellaneous expenses or any other services or
material.
NGT's Office Facilities
NGT leases approximately 2,000 square feet of office space in Dallas,
Texas, for its executive offices. NGT also has a month-to-month agreement for
yard space in Abilene, Texas, where it stores excess pipe, valves and
fittings. NGT believes that its current facilities are adequate for its
anticipated needs during the next twelve months.
Glossary of Oil and Gas Terms
The terms defined in this section are used throughout this report.
Bcf. One billion cubic feet.
Bbl. One stock tank barrel, or 42 U.S. gallons liquid volume, used herein in
reference to oil or other liquid hydrocarbons.
BOE. Barrels of oil equivalent. Oil equivalents are determined using the
ratio of six Mcf of gas (including gas liquids) to one Bbl of oil.
Development well. A well drilled within the proved area of an oil or gas
reservoir to the depth of a stratigraphic horizon known to be productive in an
attempt to recover proved undeveloped reserves.
Disposal well. A well employed for the reinjection of salt water produced
with oil into an underground formation.
Estimated net proved reserves. The estimated quantities of oil, gas and gas
liquids which geological and engineering data demonstrate with reasonable
certainty to be recoverable in future years from known reservoirs under
existing economic and operating conditions.
Exploratory well. A well drilled to find and produce oil or gas in an
unproved area, to find a new reservoir in a field previously found to be
productive of oil or gas in another reservoir, or to extend a known reservoir.
Gross acres. An acre in which a working interest is owned.
Injection well. Well employed to inject water or polymer into an oil bearing
formation in order to increase reservoir pressure.
MBbl. One thousand barrels of oil or other liquid hydrocarbons.
MMBbl. One million barrels of oil or other liquid hydrocarbons.
MBOE. One thousand barrels of oil equivalent.
Mcf. One thousand cubic feet.
MMcf. One million cubic feet.
Net acres. The sum of the fractional working interests owned in gross acres.
Pay. A geological deposit in which oil and gas is found in commercial
quantities.
PV-10 Value. The present value of estimated future gross revenue to be
generated from the production of estimated net proved reserves, net of
estimated production and future development costs, using prices and costs in
effect as of the date indicated (unless such prices or costs are subject to
change pursuant to contractual provisions), without giving effect to
non-property related expenses such as general and administrative expenses,
debt service and future income tax expenses or to depreciation, depletion and
amortization, discounted using an annual discount rate of 10%.
Productive well. A well that is producing oil or gas or that is capable of
production.
Proved developed reserves. Reserves that can be expected to be recovered
through existing wells with existing equipment and operating methods.
Proved undeveloped reserves. Reserves that are expected to be recovered from
new wells on undrilled acreage, or from existing wells where a relatively
major expenditure is required for recompletion.
Shut-in. To close down a producing well temporarily.
Stripper. A well which produces less than 10 barrels of oil equivalent per
day.
Undeveloped acreage. Lease acreage on which wells have not been drilled or
completed to a point that would permit the production of commercial quantities
or oil and gas, regardless of whether such acreage contains estimated net
proved reserves.
Working interest. The operating interest which gives the owner the right to
drill, produce and conduct operating activities on the property and to share
in the production. Working interest is computed as a percentage of the
interest remaining after payment of royalties.
NGT's Oil and Gas Properties
NGT's exploration, development and acquisition activities are focused in
two areas of Texas: North Texas and Central-West Texas. Set forth below is
information concerning each of NGT's and its wholly-owned subsidiary's major
areas of operations based upon the estimated net proved reserves as of July
31, 1997.
Oil Gas MBOE
(MBBls) (Mcf) Amount Percent
North Texas Region 883 0 883 56
Central West Texas
Region 501 40 508 32
Other Areas 160 156 186 12
PV-10 Value
(In Thousands) Percent
North Texas Region 6,834 60
Central West Texas
Region 3,083 27
Other Areas 1,503 13
North Texas Region. NGT acquired Interior Energy, Inc., a Texas
corporation ("Interior") in April 1997. Interior owns two fields with an
aggregate of 75 wells located in the north Texas county of Wilbarger. Both
properties had been shut-in for the past few years by the previous operators.
Interior owns 100 percent of the working interest in both fields. The larger
property is known as the East Milham Sand Unit covering approximately 1,026
acres. This property contains approximately 45 wells including the disposal
and injection wells. It was originally drilled in the late 1920's by several
major oil companies. The producing formation is a sand that varies in
thickness from 5 feet to over 35 feet. The property was unitized and
waterflooded in the early 1960's. Records indicate that the water "broke
through" or channeled through the oil prematurely leaving behind a large
amount of oil. Core analysis of the sand indicates that there were three feet
of sand which had permeability in excess of 900 millidarcies which created an
excellent path for the water to channel through. An independent engineering
report prepared by Pearl Petroleum Engineering Consulting Service of Abilene,
Texas ("PPE") estimates that in excess of 1 MMBbls of oil should still be
recoverable using polymers to block water channels and change the flood
pattern. NGT is currently in the process of permitting new injection wells
and setting up a pilot flood in the south section of the field. This project
accounts for over 30 percent of the operating expenses incurred by NGT in its
last fiscal year.
The other property is known as the Waggoner M lease. This property has
multiple pays and produced over 300,000 barrels of oil while in primary
production. A study by Ryder Scott in 1958 regarding the feasibility of
waterflooding the property showed the property to be a very good candidate for
secondary recovery. The operators at the time chose not to implement the plan
and records indicate that they completed wells into other pays instead. NGT
plans to implement waterflooding as recommended in the Ryder Scott report in
late summer 1997. Currently only one well is producing out of the 30 on the
property. No reserves have been assigned to this property at this time. If
the waterflood is successful, NGT hopes to recover as much as 150,000 barrels
of oil from the property, but there can be no assurance of any significant
recovery.
Central West Texas Region. As of July 31, 1997, NGT had acquired all of
the working interest in the Wilde #1 well and lease located in Runnels County,
Texas, just north of Norton, Texas. The purchase of this property included
six other adjacent leases totaling 1,208 acres. The principal interest here
is the Lower Palo Pinto Limestone. This formation produced extensively during
the 1960's and under primary recovery produced over 3,000,000 barrels of oil.
The formation produces large volumes of water along with the oil. The Wilde
#1 well was completed in this formation in December 1996 and had an initial
daily production rate of 80 barrels of oil and 60 barrels of water. Research
and engineering by independent sources indicated that the field was plugged
while many of the wells were still producing at rates of over 10 barrels of
oil per day. Information has also been found which suggests that the field
may be a good candidate for pressure maintenance or waterflood. PPE also
located ten undeveloped locations similar to the Wilde #1 location. NGT has
drilled an injection well and two exploratory wells in this field since
acquiring it. Both development wells found the Lower Palo Pinto Limestone to
be productive. At this time, both wells are being completed into deeper
payzones which were discovered. The Lange #1 well tested with a potential of
1,420 mcf per day absolute open flow and is currently shut-in awaiting a
pipeline. The second well swab tested 30-45 barrels of oil per day from the
deeper pay.
Ray L., Inc., which sold 50% of the working interest in this property to
NGT, has reserved a 4.375% net revenue overriding royalty on the lease
covering the Wilde #1 well and a 6% net revenue overriding royalty on the six
other adjacent leases. These overriding royalties will terminate after the
shares issued to Ray L., Inc. convert to Lyric common shares in the Share
Exchange and a trading market is established for Lyric Common Shares.
Other Areas. NGT owns working interests in approximately 30 wells
located on various leases in Coke, Runnels and Coleman counties in Texas. The
depths of these wells range from 2,100 feet to 5,600 feet. These wells are
classified as strippers and represent a small part of the NGT's total
reserves.
New Acquisitions. In July 1997 NGT acquired a lease on the Miller Ranch
located in Crockett County, Texas. The lease gives NGT three years to drill
the first well and up to five years to fully develop a 1,280 acre lease.
Additionally, the lease gives NGT an option on approximately 8,700 acres owned
by the Miller Ranch adjacent to the leased acreage. The option exercise price
is $100 per acre. The property is located in the Ozona Canyon Sand gas field.
U.S. Department of Energy reports production from wells in this field average
.7 Bcf of gas from the Canyon Sand formation, although there can be no
assurance that this property will produce at that rate. Management believes
approximately 6,000 acres of the property may be productive from the Canyon
Sand. Additionally, Amoco Oil Company currently operates several wells
producing from the Ellenburger formation at approximately 13,000 feet deep.
These wells have cumulative production from .1 Bcf to over 19 Bcf of gas per
well. NGT's lease covers all depths. Although there are direct offset
drilling locations on the lands covered by the option, NGT has assigned no
reserves to this property since the exercise of the option would require
additional capital and no source for such capital has been identified.
Estimated Net Proved Reserves
The Company has employed PPE to evaluate approximately 83 percent of its
PV-10 Values acquired since January 31, 1997 and NGT has evaluated the
remainder. The following table reflects summary information with respect to
the estimates of NGT's net proved oil and gas reserves for each of the years
in the three-year period ended April 30, 1997.
As of April 30
1995 1996 1997
RESERVE DATA:(1)
Oil (MBBls). . . . . . . . . . . 319 298 1,161
Gas (Mcf). . . . . . . . . . . . 296 211 156
MBOE . . . . . . . . . . . . . . 368 333 1,187
PV-10 Value (thousands). . . .$2,784 $2,708 $8,812
(1) No values were used or included for the Miller Ranch prospect or the
Waggoner M leases. Values for year ending April 30, 1997 used $19 per
barrel of oil and $1.80 per Mcf of gas. The years ending April 30, 1996
and 1995 used $17.00 per barrel of oil and $1.80 Mcf of gas.
Production, Price and Cost History
The following table summarizes the average net daily volumes of oil and
gas produced from properties in which NGT held an interest during the periods
indicated.
As of April 30
1995 1996 1997
OPERATING DATA:
Net production:
Oil . . . . . . . . . . . .7,140 6,004 3,833
Gas (Mcf) . . . . . . . . 30,951 17,210 10,316
MBOE. . . . . . . . . . . 12,299 8,872 5,552
Average net daily production:
Oil . . . . . . . . . . . . . 20 16 11
Gas (Mcf) . . . . . . . . . . 85 47 28
MBOE. . . . . . . . . . . . . 34 24 16
Average sales price:
Oil (per Bbl) . . . . . . . . 17.21 17.53 20.71
Gas (per Mcf) . . . . . . . . .1.47 1.55 2.12
Additional per BOE data:
Average lifting cost. . . . . .9.49 12.89 17.73
(1)
(1) 28 percent of the operating costs were associated with failed attempts to
re-establish production at four of NGT's leases which had been shut-in
for an extended time. Those properties are currently scheduled for
plugging and the reserves previously carried on the books have been
written off in the last fiscal year. See "NGT Management's Discussion
and Analysis of Financial Condition and Results of Operations."
Productive Wells
The following table sets forth information regarding the number of
productive wells in which NGT held a working interest as of the end of each of
the past three fiscal years and as of July 31, 1997. Productive wells are
either currently producing wells or shut-in wells capable of commercial
production. One or more completions in the same bore hole are counted as one
well. A well is categorized under state reporting regulations as an oil well
or a gas well based upon the ratio of gas to oil produced when it first
commenced production, and such designation may not be indicative of current
production.
Year Ended April 30,
1995 1996 1997 July 31, 1997
Gross Net Gross Net Gross Net Gross Net
Oil. . . . .23 10.7 20 10.7 90 83.1 95 88.1
Gas. . . . . 3 2.1 3 2.1 2 1.1 3 2.1
__ ____ __ ____ __ ____ __ ____
Total 26 12.8 23 12.8 92 84.2 98 90.2
Drilling Activities
The table below sets forth the number of new wells drilled in which NGT
held a working interest for the last three fiscal years and as of July 31,
1997.
Year Ended April 30,
1995 1996 1997 July 31, 1997
Gross Net Gross Net Gross Net Gross Net
Development
Oil . . . . 0 0 0 0 0 0 2 2
Gas . . . . 0 0 0 0 0 0 1 1
Dry . . . . 0 0 0 0 0 0 1 1
___ ___ ___ ___ ___ ___ ___ ___
Total 0 0 0 0 0 0 4 4
Exploratory
Oil . . . . 0 0 0 0 0 0 0 0
Gas . . . . 0 0 0 0 0 0 0 0
Dry . . . . 0 0 0 0 0 0 0 0
___ ___ ___ ___ ___ ___ ___ ___
Total 0 0 0 0 0 0 0 0
Grand Total 0 0 0 0 0 0 4 4
All of NGT's drilling activities and completion activities are conducted
on a contract basis with independent operators and drilling contractors. NGT
owns no drilling equipment or workover rigs.
Leasehold and Other Interests
The following table sets forth the gross and net acres of developed and
undeveloped oil and gas leases and lease options held by NGT as of the end of
each of the last three fiscal years and as of July 31, 1997. Undeveloped
acreage includes leasehold interest which may already have been classified as
containing proved undeveloped reserves.
Developed Undeveloped
Acreage (1) Acreage (2) Total
Gross Net Gross Net Gross Net
4/30/95 1,415 551 0 0 1,415 551
4/30/96 1,415 551 0 0 1,415 551
4/30/97 2,252 1,648 1,088 1,087 3,340 2,735
7/31/97 2,452 1,845 11,300 10,036 13,752 11,881
(1) Developed acreage is acreage assigned to producing wells for the spacing
unit of the producing formation. Developed acreage in certain of NGT's
properties that include multiple formations with different well spacing
requirements may be considered undeveloped for certain formations, but
have been included only as developed acreage in the presentation above.
(2) Undeveloped acreage is lease acreage on which wells have not been drilled
or completed to a point that would permit the production of commercial
quantities of oil and gas regardless of whether such acreage contains
estimated net proved reserves.
ITEM 3. LEGAL PROCEEDINGS
Except as set forth below, Lyric knows of no pending or threatened legal
proceedings to which it is a party other than routine litigation for which it
has no material financial exposure and no such proceedings are known to Lyric
to be contemplated by governmental authorities.
On August 1, 1997, the 47th District Court for Potter County, Texas
rendered a judgment against Lyric and G.E. Stahl for approximately $60,000 in
the case of Crouch Enterprises, Inc. dba Crouch Petroleum Company v. G.E.
Stahl, Stahl Petroleum Company and Lyric Energy, Inc. Liability for the
judgment is joint and several. Mr. Stahl and Lyric intend to appeal the
judgment. Stahl Petroleum Company, a Company owned and controlled by G.E.
Stahl, has agreed to indemnify Lyric against all losses and expenses arising
from this lawsuit. Accordingly, Lyric does not believe it will suffer any
adverse effect as a result of the judgment.
NGT knows of no pending or threatened legal proceedings to which NGT is a
party other than routine litigation for which NGT has no material financial
exposure. No such proceedings are known to NGT to be contemplated by
governmental authorities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the period of time from the last filing made by the Company and
including the period of time covered by this report, no matters were submitted
to a vote of the Company's shareholders.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(a) Market Information
On rare occasions the Company's Common Stock is traded on the
over-the-counter market and quotes for Common Stock are reported in the
National Quotation Bureau's "Pink Sheets." There is no established market for
the Company's Common Stock.
The following table sets forth the range of high and low bid quotations,
as reported by National Quotation Bureau:
Quarter Ended High Low
July 31, 1995 None None
October 30, 1995 None None
January 31, 1996 None None
April 30, 1996 None None
July 31, 1996 None None
October 30, 1996 None None
January 31, 1997 $.035 $ 0
April 30, 1997 $.035 $0.001
The foregoing bid quotations reflect inter-dealer prices, without
mark-up, mark-down or commissions, and may not necessarily represent actual
transactions.
There is currently no public trading market for NGT's common or preferred
shares.
(b) Holders
The following table sets forth the approximate number of security holders
of record of the Company's $0.01 par value common stock as of July 28, 1997.
Number of
Title of Class Record Holders
$0.01 Par Value 4,155
Common Stock
As of July 28, 1997, there were 135 holders of record of NGT's Common
Stock, eight holders of NGT's Series 1994-A Preferred Stock and 19 holders of
NGT's Series 1994-B Preferred Stock.
(c) Dividends
No cash dividends have been declared with respect to the Company's Common
Stock since its inception, and the Company has no present intention to pay
such dividends in the foreseeable future. No cash dividends have been
declared with respect to NGT's common stock since its inception, and NGT has
no present intention to pay such dividends in the foreseeable future.
PART III
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Lyric's Plan of Operation
See "Plan of Operation" in Item 1(c).
NGT Management's Discussion and Analysis of Financial Condition and Results of
Operation
Overview
Natural Gas Technologies, Inc. was incorporated in April 1993 and
commenced operations in June 1993. NGT acquired interests in various oil and
gas properties in February 1994 and June 1994 and has been active in the oil
and gas industry since that time.
NGT uses the full cost method of accounting for its oil and gas producing
activities and, accordingly, capitalized all costs incurred in the
acquisition, exploration and development of proved oil and gas properties,
including the costs of abandoned properties, dry holes, geophysical costs and
annual lease rentals. In general, sales or other dispositions of oil and gas
properties are accounted for as adjustments to capitalized costs, with no gain
or loss recorded.
NGT entered into a letter of intent dated January 2, 1997, as modified on
March 17, 1997, whereby NGT obtained on April 10, 1997 a controlling interest
in Lyric, and pursuant to which Lyric will acquire NGT in a share exchange
transaction whereby the shareholders of NGT will upon completion of the
transaction hold approximately 95 percent of the total outstanding shares of
Lyric. See Item 1--"Acquisition of Control and Share Exchange Transaction."
Comparison of Years Ended April 30, 1997 and 1996
Oil and gas revenues. Oil and gas revenues decreased by $32,043, or 24%,
to $100,987 for the year ended April 30, 1997 compared with $133,030 for the
1996 period. This decrease was primarily attributable to physical depletion
of reserves and mechanical failure at one of NGT's wells.
Lease operating expenses. Lease operating expenses for the year ended
April 30, 1997 were $98,455, a decrease of $15,955, or 14%, compared with
$114,410 for the 1996 period. Lease operating expenses during the 1997 period
were inflated by failed attempts to reestablish production at four of NGT's
leases which had been shut-in for extended periods of time. The foregoing
expenses accounted for approximately 28% of the lease operating expenses for
fiscal 1997.
Depreciation, depletion and amortization. Depreciation, depletion and
amortization increased by $9,432, or 23%, to $50,394 for the year ended April
30, 1997 compared with $40,962 for the 1996 period. This increase was
primarily attributable to reserve purchases in the fourth quarter at a higher
cost per BOE than previously acquired reserves.
Professional fees. Professional fees increased by $34,245, or 324%, to
$44,816 for the year ended April 30, 1997 compared with $10,571 for the 1996
period. The increase was primarily due to legal and accounting services with
respect to NGT's loan and pending share exchange with Lyric, the costs of
bringing Lyric current on its Exchange Act reporting requirements and costs
associated with the Information Statement for the Special Meeting to be held
for Lyric shareholders to approve certain matters in connection with the Share
Exchange.
Management and consulting fees. Management and consulting fees increased
by $25,000, or 28%, to $115,000 for the year ended April 30, 1997 compared
with $90,000 for the 1996 period. These fees were attributable to financial
advisory services rendered.
Rent. Rent increased $3,049, or 73%, to $7,249 for the year ended April
30, 1997 compared to $4,200 for the 1996 period due to NGT's move to larger
offices.
Director Fees. Director fees of $20,833 were attributable to the
amortization expense associated with the issuance of stock in October 1993 to
a Director as compensation for his services for three years. This fee
decreased from $50,000 in the 1996 period due to the completion in the last
fiscal year of such amortization.
Travel. Travel expenses for the year ended April 30, 1997 of $7,610 were
attributable to management's meetings with business partners and
professionals. Travel expenses for the year ended April 30, 1996 were
nominal.
Other expenses. Other expenses for the year ended April 30, 1997
increased $3,305, or 50%, to $9,896 compared to $6,591 for the 1996 period
primarily due to entertainment expenses.
Interest expense. Interest expense for the year ended April 30, 1997
increased $15,441, or 55%, to $43,648 compared to $28,207 for the 1996 period
primarily due to assumption of the $3 million note in connection with NGT's
acquisition of Interior Energy, Inc.
Net loss. Net loss for the year ended April 30, 1997 increased $78,654,
or 36%, to $299,485 compared to $220,831 for the 1996 period primarily due to
increased depreciation, depletion and amortization and increased professional
fees, management and consulting fees and travel and other expenses associated
with NGT's reorganization with Lyric and more aggressive acquisitions of oil
and gas properties, partially offset by lower director fees and the lack of
offering costs.
Liquidity and Capital Resources
On April 30, 1997, NGT had $816,725 in cash on hand. NGT's primary
sources of liquidity are proceeds from stock issuances, advances from related
parties and borrowings. NGT's principal cash needs are for the exploration
and development of oil and gas properties.
Cash flow. NGT's net cash provided by operating activities increased
$201,814 to $166,568 for the year ended April 30, 1997 compared with $(35,246)
in the 1996 period primarily due to lower director fees, a related party stock
issuance in the prior period and a much larger portion of the net loss being
attributable to non-cash expenses. Net cash used in investing activities
increased $804,060 to $826,286 for the year ended April 30, 1997 compared to
$22,226 in the 1996 period primary due to lease and drilling costs, higher
purchases of fixed assets and the goodwill booked in the Lyric acquisition in
the 1997 period.
Net cash provided by financing activities was $1,475,937 for the year
ended April 30, 1997, consisting of stock purchases and advances from related
parties, partially offset by note payments, compared with net cash provided of
$57,959 in the 1996 period attributable to advances from related parties and
note proceeds.
Capital expenditures. NGT's expenditures for the purchase of fixed
assets and oil and gas properties are the primary use of its capital
resources. NGT has no current commitments for capital expenditures, but its
current business plan anticipates material capital expenditures during the
fiscal year ended April 30, 1998, subject to the availability of capital. NGT
anticipates raising capital for additional capital expenditures through the
public or private sale of securities and/or through bank loans. The amount of
future capital expenditures will depend upon a number of factors including the
impact of oil and gas prices on investment opportunities, the availability of
capital and the success of its development activity which could lead to
funding requirements for further development.
Effects of Inflation and Changing Prices
NGT's results of operations and cash flows are affected by changing oil
and gas prices. At present, NGT does not expect that changes in the rates of
overall economic growth or inflation will significantly impact product prices
in the short-term. While gas prices seem most dependent on weather in North
America and corresponding usage, oil prices are more subject to global
economic forces and supply. NGT cannot predict the extent of any such effect.
If oil and gas prices increase, there could be a corresponding increase in the
cost to NGT for drilling and related services as well as an increase in
revenues.
Cautionary Statement with Regard to Forward Looking Information
The matters discussed in this report, when not historical matters, are
forward looking statements which involve a number of risks and uncertainties
which could cause actual events and results to differ materially from
projected or anticipated events or results. Such factors include, among other
things, the speculative nature of oil and gas exploration, the volatile
markets for oil and gas, uncertainties in production and reserve estimates,
environmental and governmental regulations, the availability of financing,
particularly equity financing, the ability of Lyric to establish a trading
market for its stock, force majeure events and other risk factors as described
from time to time in Lyric's filings with the Securities and Exchange
Commission.
ITEM 7. FINANCIAL STATEMENTS AND SCHEDULES
See Financial Statements beginning at Page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
On July 9, 1997, the Company engaged Robert Early & Company, P.C. as the
Company's new independent auditors for the period ending April 30, 1997 and on
a going forward basis. At approximately the same time, the Company informed
its previous auditors, Wilson, Haag & Co., P.C., that they would not be
retained as the Company's auditors for fiscal 1997 and future periods. The
change in auditors was not brought about as the result of any disagreement
with the Company's former auditors, or as a result of any adverse opinion or
disclaimer of opinion as there were none. There also had not been any
disagreement with the former auditors relative to any uncertainty, audit scope
or accounting principles. The sole reason for the change was the familiarity
of the new auditor with the accounting practices and financial statements of
NGT. The change was recommended and approved by the Board of Directors as a
whole.
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth the names and ages of all Directors and
Executive Officers of Lyric and the periods during which each has served as
such:
Position Held With Director
Name Age Lyric Since
Brent A. Wagman 39 Chairman April 1997
of the Board
G. E. Stahl 70 President, Chief May 1980
Executive Officer
and Director
Warren Donohue 56 Director April 1997
The Company's Directors hold office until the next annual meeting of the
Company's shareholders. Except as set forth below, there is no arrangement or
understanding between any Director or nominee for Director of the Company and
any other person or persons pursuant to which such Director was or is to be
selected as Director or nominee for Director. Pursuant to the $100,000 Note
between Lyric and NGT, Lyric agreed to fill two vacancies on the Board of
Directors with Directors nominated by NGT upon conversion of the Note. Brent
Wagman and Warren Donohue were appointed to the Board pursuant to such
agreement. The Company's Executive Officers hold office until the next annual
meeting of Directors of the Company.
The following table sets forth the names and ages of all Directors and
Executive Officers of NGT.
Position Held
Name Age with NGT Director Since
Brent A. Wagman 39 President, April 1993
Director
Warren Donohue 56 Secretary, October 1993
Director
There are no family relationships between any Director or Executive
Officer of NGT or Lyric.
Following is a brief account of the business experience during the past
five years of the Directors and Executive Officers of the Lyric and NGT.
Brent A. Wagman. Mr. Wagman has been President, Chief Executive Officer
and a Director of NGT since its organization in April 1993 and a Chairman of
the Board of Lyric since April 1997. He has also been president, chief
executive officer and director of Wagman Petroleum, Inc., an oil and gas
operator, since May 1988. Mr. Wagman graduated from Valencia College with an
Associate in Arts Degree in 1976 and attended the University of Florida,
majoring in Chemistry and Physics, but left prior to obtaining a degree from
that institution. Mr. Wagman devotes approximately 85 percent of his time to
NGT and 15 percent to Wagman Petroleum, Inc.
G. E. "Skip" Stahl. Mr. Stahl has been the President, Chief Executive
Officer and a Director of Lyric since its organization. Mr. Stahl has been
actively engaged as an independent oil and gas operator since 1960. He has
been the president, a director and controlling shareholder of Stahl Petroleum
Company, Amarillo, Texas, an independent oil and gas operator, since 1960. Mr.
Stahl previously was chairman of the board of directors, chief executive
officer and secretary of Advanced Monitoring Systems, Inc., a publicly held
company engaged in pipeline monitoring. Mr. Stahl resigned as an officer and
director of Advanced Monitoring Systems on September 10, 1992, was reappointed
on April 1, 1993, and resigned again on August 30, 1993. Since August 30,
1993, Mr. Stahl has not been associated with Advanced Monitoring Systems, Inc.
Warren Donohue. Mr. Donohue has been a Director of NGT since October
1993 and was appointed Secretary in August, 1996. He became a Director of
Lyric in April 1997. Mr. Donohue held various positions with Volvo Cars of
North America, Inc. from November 1958 until December 1996, at which time he
was Sales Development Manager. Mr. Donohue is also President of Donohue
Enterprises Inc., a marketer of women's bridal apparel. He serves as a
director of Haber, Inc., a public company which manufactures high speed
separation devices. Mr. Donohue devotes approximately thirty percent of his
time to the business of NGT and Lyric.
ITEM 10. MANAGEMENT'S COMPENSATION
The following table sets forth all remuneration to Lyric's Chief
Executive Officer for services in all capacities to Lyric during the fiscal
years ended April 30, 1997, 1996 and 1995. No Officer of Lyric earned
$100,000 or more during the fiscal year ended April 30, 1997.
Long Term Compensation
Name
and Securities
Prin- Annual Compensation Rest- Under- All
cipal ricted lying Other
Posi- Bonus/ Compen- Stock Options Compen-
tion Year Salary Other sation Awards /SARs LTIP sation
(a) (b) (c) (d) (e) (f) (g) (h) (i)
G.E. 1997 $ 0 $ 0 $ 0 0 0 $ 0 $ 0
Stahl,1996 $ 0 $ 0 $ 0 0 0 $ 0 $ 0
Pres- 1995 $ 0 $ 0 $ 0 0 0 $ 0 $ 0
ident
No Directors of Lyric receive fees for their attendance at meetings of
Lyric's Board of Directors. There are no other arrangements pursuant to which
Lyric's Directors receive remuneration from Lyric for services as a Director
or arrangements for remuneration upon termination of employment of Directors
or Executive Officers. Lyric has no options, warrants or other rights
outstanding as of the date of this report.
The following table sets forth all renumeration to NGT's Chief Executive
Officer for services in all capacities to NGT during the fiscal years ended
April 30, 1997, 1996 and 1995. No Officer of NGT earned $100,000 or more
during the fiscal year ended April 30, 1997.
Long Term Compensation
Name
and Securities
Prin- Annual Compensation Rest- Under- All
cipal ricted lying Other
Posi- Bonus/ Compen- Stock Options Compen-
tion Year Salary Other sation Awards /SARs LTIP sation
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Brent A. 1997 $ 0 $ 0 $ 0 0 0 $ 0 $ 0
Wagman, 1996 $ 0 $ 0 $ 0 0 0 $ 0 $ 0
Presi- 1995 $ 0 $ 0 $ 0 0 0 $ 0 $ 0
dent
No Directors of NGT receive fees for their attendance at meetings of
NGT's Board of Directors. Except as set forth below, there are no arrangements
pursuant to which NGT's Directors receive remuneration from NGT for services
as a Director or arrangements for remuneration upon termination of employment
of Directors or Executive Officers. Upon joining the Board of Directors of
NGT in October 1993, Warren Donohue was granted 150,000 shares of NGT common
stock and an option to purchase an additional 100,000 shares at $4.00 per
share exercisable commencing six months after NGT completes a public offering
and expiring four years thereafter. NGT has not completed such an offering.
Lyric intends to issue Mr. Donohue a comparable option for Lyric shares after
the completion of the Share Exchange.
Mr. Wagman has been paid a salary of $31,690 and $31,975 for the years
ended December 31, 1996 and 1995 by Wagman Petroleum, Inc., a company which is
approximately 45 percent owned by Mr. Wagman. See Item 12 -- "Certain
Relationships and Related Transactions."
For the fiscal year beginning May 1, 1997, Mr. Wagman is to receive a
salary of $84,000 per year.
Employment Agreement
NGT entered into an employment agreement dated January 16, 1997 with
Terrance Huston. Mr. Huston received 10,000 shares of NGT common stock upon
execution of the agreement. Mr. Huston will receive an additional 50,000
shares of NGT common stock if NGT is successful in obtaining a controlling
interest in Interstate Chemical, Inc., which currently holds the Patent for
an alternative fuel blending process described in Item 1 -- "Petroleum
Blending." Mr. Huston will receive an additional 100,000 shares upon
demonstration that the Patent may be transferred to NGT free and clear of all
legal challenges thereto. Upon actual transfer of the Patent to NGT or a
subsidiary, Mr. Huston will receive an addition 50,000 NGT common shares. Mr.
Huston will at that point also be employed as President of the NGT subsidiary
which operates the petroleum blending business for a minimum of eight months
at an annual salary of $70,000 per year. NGT has further committed to Mr.
Huston to make available up to $500,000 in working capital for such subsidiary
at the time the Patent is transferred. No source for such funds has yet been
identified. After the Share Exchange, Lyric will assume the obligations under
this agreement, including the obligation to issue shares to Mr. Huston on the
basis of one Lyric share for each NGT share promised.
Compliance with Section 16(a) under the Exchange Act
Based solely on a review of reports filed with the Company, all
Directors, Executive Officers and Beneficial Owners of ten percent of the
outstanding Common Stock timely filed all reports regarding transactions in
the Company's securities required to be filed during the fiscal year ended
April 30, 1997 by Section 16(a) of the Exchange Act, except as follows: Brent
Wagman, Warren Donahue and NGT each filed late their respective Form 3 Initial
Statements of Beneficial Ownership of Securities.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of July 28, 1997, the Common Stock
ownership of each person known by the Company to be the beneficial owner of
five percent or more of the Company's Common Stock ("Principal Shareholders"),
all Directors and Officers individually and all Directors and Officers of the
Company as a group. Except as noted, each person has sole voting and
investment power with respect to the shares shown. There are no contractual
arrangements or pledges of the Company's securities, known to the Company,
which may at a subsequent date result in a change of control of the Company.
Amount of Beneficial Amount of Beneficial
Ownership Before Ownership After
Reverse Split Reverse Split
and Share Exchange(1) and Share Exchange
Name and Address Common Percent of Common Percent of
of Beneficial Owner Stock Class(2) Stock Class(3)
Natural Gas 203,041,517(5) 81% ---(4) ---
Technologies, Inc.
16775 Addison Road
Suite 300
Dallas, TX 75248
Brent A. Wagman(5) --- --- 1,357,226(6) 31%
Chairman of the Board
16775 Addison Road
Suite 300
Dallas, TX 75248
Warren Donohue(5) --- --- 362,500 9%
Director
16775 Addison Road
Suite 300
Dallas, TX 75248
G. E. Stahl 3,577,402 1% 14,820 0.4%
President, Director
1013 West 8th Avenue
Amarillo, TX 79101
All Officers and 3,577,402 1% 1,734,546 40%
Directors as a
Group (three persons)
__________________________
(1) Rule 13d-3 under the Exchange Act, involving the determination of
beneficial owners of securities, includes as beneficial owners of
securities, among others, any person who directly or indirectly, through
any contract, arrangement, understanding, relationship or otherwise has,
or shares, voting power and/or investment power with respect to such
securities; and, any person who has the right to acquire beneficial
ownership of such security within sixty days through means, including but
not limited to, the exercise of any option, warrant or conversion of a
security. The Company has no options or warrants outstanding.
(2) Based upon 250,000,000 shares issued and outstanding prior to the Reverse
Split described in Item 1 - "Acquisition of Central and Share Exchange
Transaction."
(3) Based upon 4,221,575 shares issued and outstanding after the reverse
split and the Share Exchange described in Item 1 - "Acquisition of
Central and Share Exchange Transaction." The actual manner of shares
issued and outstanding may be slightly different due to rounding after
the reverse split.
(4) All shares of Lyric held by NGT will be distributed to NGT shareholders
in the Share Exchange.
(5) Mr. Wagman and Mr. Donohue are directors of NGT and Mr. Wagman is also
President and Chief Executive Officer of NGT and therefore may also be
considered beneficial owners of the Company's shares owned by NGT
pursuant to Rule 13d-3.
(6) Includes 194,726 shares held by Wagman Petroleum, Inc. and 212,500 shares
held by Long Boat Trust. Mr. Wagman may be deemed the beneficial owner
of all such shares. Also includes 100,000 shares underlying a currently
exercisable option for NGT shares which will be exchanged for an
equivalent option for Lyric shares.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Lyric Transactions
On December 1, 1982, the Company loaned Mr. Wesley Masters, a former
Director, $7,551 pursuant to a note bearing interest at 10% per annum. As of
April 30, 1996, $17,681 was due on such obligation. Such amount was applied
against an obligation of the Company to a trust controlled by Mr. Masters and
the remainder of that obligation of the Company was forgiven in January 1997.
In 1983, the Company loaned Mr. L. K. Hayhurst, a former Director, a
total of $8,874 pursuant to two notes bearing interest at 10% per annum. As
of April 30, 1996, $12,752 was due on such notes. In January 1997, the
Company forgave the obligations under those notes in consideration of Mr.
Hayhurst's past uncompensated services to the Company as Director.
As of April 30, 1996, Stahl Petroleum Company, over a period of time had
loaned to Lyric $43,692.34, for Lyric's working capital and for Lyric to pay
certain other expenditures. That amount was repaid out of the proceeds from
conversion of the $100,000 loan to the Company from NGT.
In April 1997, Stahl Petroleum Corporation was paid $35,000 for past
services out of the proceeds from the $100,000 loan to the Company from NGT.
The Company believes that the foregoing transactions were on terms at
least as favorable as those which it could have obtained from unaffiliated
parties.
NGT Transactions
Wagman Petroleum, Inc. ("WPI"), which is approximately 45 percent owned
by NGT's President and Chief Executive Officer, Brent Wagman, operates
essentially all of the properties in which NGT has interests. As operator,
WPI incurs expenses for drilling, reworking and normal lease operating
expenses and then bills these expenses to the working interest owners. WPI
collects a portion of NGT's gas production revenues and offsets such amounts
against amounts that are due from NGT. At April 30, 1997 and 1996, NGT owed
WPI $134,982 and $5,206, respectively, in accounts payable. The bulk of the
April 30, 1997 balance is due to drilling and reworking on the properties that
NGT has acquired and reworking interests previously held which occurred during
March and April 1997.
In July 1994, Brent Wagman, Ray Parker and Sonja Fletcher, all Directors
of NGT at the time, agreed to return without consideration an aggregate of
500,000 shares of NGT common stock issued to them for their efforts in
organizing NGT. This transaction was done in order to reduce the number of
outstanding common shares in connection with an anticipated public offering of
NGT common shares. Such offering never occurred.
In June 1994, WPI agreed to exchange 518,334 shares of NGT common stock
for 194,376 shares of NGT Series 1994-B Preferred Stock, also in connection
with NGT's desire to reduce the number of outstanding common shares.
Through March 31, 1997, NGT reimbursed WPI for rent, postage, travel and
other office expenses. Office rent reimbursement to WPI totaled $4,200 for
each of fiscal 1997 and 1996. WPI also advanced funds to NGT for other
expenses during March 1997. These advances were reflected in a demand note
effective April 30, 1997 for $79,067 which bears interest at 5% per annum.
In July 1996, NGT repaid a note payable to WPI with a balance of
$396,988, accrued interest of $24,681 and other liabilities owed to WPI in the
amount of $89,997 through the issuance of 354,994 shares of NGT common stock.
In connection with such transaction, WPI also agreed to forgive the then-
accrued but undeclared dividends on its 194,376 shares of Series 1994-B
Preferred Stock and all future dividends on such shares until NGT had a class
of securities registered under the Exchange Act. In recognition of that
forgiveness, NGT voluntarily converted its shares of Series 1994-B Preferred
Stock into 194,376 shares of NGT common stock without receipt of accumulated
dividends in May 1997.
In July 1996, NGT issued 26,661 shares of NGT common stock to Brent
Wagman as payment for $53,332 in unreimbursed expenses and cash advances.
In February 1997, Brent Wagman loaned $50,000 and Warren Donohue loaned
$50,000 to NGT pursuant to demand notes bearing interest at 5% per annum.
These funds were used to loan $100,000 to Lyric pursuant to the Convertible
Note. In April 1997, these notes were converted as partial payment for
112,500 shares of NGT common stock issued to each of Mr. Wagman and Mr.
Donohue for $7.00 per share.
In May 1997, NGT purchased the remaining one half working interest in the
Wilde #1 well and lease located in Runnels County, Texas, from Brent A. Wagman
in consideration for a $200,000 demand note bearing interest at 5% per annum
with principal and interest due two years from issuance and an option
exercisable for two years to purchase 100,000 shares of NGT common stock at
$7.00 per share.
NGT believes that the foregoing transactions were on terms at least as
favorable as those which it could have obtained from third parties.
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents Filed as Part of This Report.
(1) Financial Statements: (The following Financial Statements and
Schedules are included in Part III, Item 8.)
Lyric Financial Statements
Report of Robert Early & Company, P.C.
Report of Wilson, Haag & Co., P.C.
Balance Sheets as of April 30, 1997 and 1996.
Statements of Operations for the years ended April 30, 1997 and
1996.
Statements of Changes in Stockholders' Equity/(Deficiency) for
the years ended April 30, 1997 and 1996.
Statements of Cash Flows for the years ended April 30, 1997 and
1996.
Notes to Financial Statements, including Pro Forma Combined
Financial Information.
NGT Consolidated Financial Statements
Report of Robert Early & Company, P.C.
Balance Sheets as of April 30, 1997 and 1996.
Statements of Operations for the years ended April 30, 1997 and
1996.
Statements of Changes in Stockholders' Equity for the years
ended April 30, 1997 and 1996.
Statements of Cash Flows for the years ended April 30, 1997 and
1996.
Notes to Consolidated Financial Statements.
Supplementary Information Relating to Oil and Gas Producing
Activities for the years ended April 30, 1997 and 1996.
(2) Exhibits
3.1 Articles of Incorporation of Lyric Energy, Inc. (Incorporated
by reference to Exhibit 3 of Registrant's Form 10-KSB for April
30, 1996).
3.2 Articles of Amendment of Lyric Energy, Inc. (Incorporated by
reference to Exhibit 3 of Registrant's Form 10-KSB for April
30, 1996).
3.3 Articles of Correction to the Articles of Incorporation of
Lyric Energy, Inc. (Included herewith).
3.4 Bylaws of Lyric Energy, Inc. (Incorporated by reference to
Exhibit 3 of Registrant's Form 10-KSB for April 30, 1996).
3.5 Articles of Incorporation of Natural Gas Technologies, Inc.
(Included herewith).
3.6 Articles of Amendment of Natural Gas Technologies, Inc.
(Included herewith).
3.7 Articles of Second Amendment of Natural Gas Technologies, Inc.
(Included herewith).
3.8 Bylaws of Natural Gas Technologies, Inc. (Included herewith).
3.9 Statement of Designation of Rights and Preferences of Natural
Gas Technologies, Inc. (Included herewith).
10.1 Compromise and Settlement Agreement dated July 31, 1991 between
the Registrant and Amarillo National Bank (Incorporated by
reference to Exhibit 10.1 of Registrant's Form 10-KSB for April
30, 1996).
10.2 Letter of Intent dated January 2, 1997 with Natural Gas
Technologies, Inc., as amended by letter dated March 17, 1997
(Incorporated by reference to Exhibit 10.2 of Registrant's Form
10-KSB for April 30, 1996).
10.3 Restated Convertible Promissory Note dated February 4, 1997
(Incorporated by reference to Exhibit 10.3 of Registrant's Form
10-KSB for April 30, 1996).
10.4 Release of Judgment dated December 31, 1996 (Incorporated by
reference to Exhibit 10.4 of Registrant's Form 10-KSB for April
30, 1996).
10.5 Termination of Agreement and Cancellation of Loan dated January
2, 1997 (Incorporated by reference to Exhibit 10.5 of
Registrant's Form 10-KSB for April 30, 1996).
10.6 Agreement between the Registrant and Amarillo National Bank
dated March 3, 1997 (Incorporated by reference to Exhibit 10.6
of Registrant's Form 10-KSB for April 30, 1997).
10.7 Indemnification Agreement between the Registrant and Stahl
Petroleum Company dated March 17, 1997 (Incorporated by
reference to Exhibit 10.7 of Registrant's Form 10-KSB for April
30, 1997).
10.8 Operating Agreement between Natural Gas Technologies and
Wagman Petroleum, Inc. dated February 1, 1994 (Included
herewith).
10.9 Purchase Agreement between Natural Gas Technologies and Mobile
Americlean dated effective October 11, 1996 (Included
herewith).
10.10 Assignment from Mobile Americlean to Natural Gas Technologies
dated October 11, 1996 (Included herewith).
10.11 Office Lease Agreement between Natural Gas Technologies,
Inc. and Brookdale Investors, L.P. dated March 12, 1997
(Included herewith).
10.12 Purchase Agreement between Natural Gas Technologies, Inc.
and Interior Energy, Inc. (Included herewith).
10.13 Assignment Agreement between Ray L., Inc. and Natural Gas
Technologies, Inc. (Included herewith)
10.14 Purchase Agreement between Ray L., Inc. and Natural Gas
Technologies, Inc. dated April 1, 1997 (Included herewith).
10.15 Purchase Agreement between Brent A. Wagman and Natural Gas
Technologies, Inc. dated May 30, 1997 and Assignment Agreement
dated May 30, 1997 (Included herewith).
10.16 Assignment Agreement between J.B., Ethel, and Robert
Miller and Natural Gas Technologies, Inc. dated July 23, 1997
(Included herewith).
10.17 Agent Agreement between Natural Gas Technologies, Inc. and
Continental Capital & Equity Corporation, Inc. dated February
1, 1996 (Included herewith).
10.18 Employment Agreement between Terry Huston and Natural Gas
Technologies, Inc. dated January 16, 1997 (Included herewith).
10.19 Wagman Petroleum, Inc. letter dated April 15, 1996
(Included herewith).
10.20 Brent A. Wagman letter dated July 17, 1996 (Included
herewith).
10.21 Natural Gas Technologies, Inc. Promissory Note to Wagman
Petroleum, Inc. dated April 30, 1997 (Included herewith).
10.22 Natural Gas Technologies, Inc. Promissory Note to Warren
Donohue dated February 15, 1997 (Included herewith).
10.23 Natural Gas Technologies, Inc. Promissory Note to Brent A.
Wagman dated February 15, 1997 (Included herewith).
(b) Reports on Form 8-K
The Company filed a report on Form 8-K for an event dated April 10,
1997 in connection with the change in control of the Company and the probable
Share Exchange with NGT.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
LYRIC ENERGY, INC.
Dated: September 8, 1997 By: /s/ G.E. Stahl
G.E. Stahl, President, Chief
Executive Officer and Chief
Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Dated: September 8, 1997 By: /s/ Brent Wagman
Brent Wagman, Chairman
of the Board
Dated: September 8, 1997 By: /s/ G.E. Stahl
G. E. Stahl, Director
Dated: September 8, 1997 By: /s/ Warren Donohue
Warren Donohue, Director
LYRIC ENERGY, INC.
(A Development Stage Enterprise)
AUDITED FINANCIAL STATEMENTS
For the Years Ended
April 30, 1997 and 1996
ROBERT EARLY & COMPANY, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
LYRIC ENERGY INC.
Dallas, Texas
We have audited the accompanying balance sheets of Lyric Energy, Inc. (a
development stage enterprise) as of April 30, 1997 and the related statements
of operations, changes in shareholders' equity/(deficiency), and cash flows
for the year 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 audit. The financial statements of
Lyric Energy, Inc. as of April 30, 1996, were audited by other auditors whose
report dated January 10, 1997, on those statements included an explanatory
paragraph that described substantial doubt about the Company's ability to
continue as a going concern.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the 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 Lyric Energy, Inc. as of
April 30, 1997, and the results of its operations and its cash flows for the
year then ended, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Lyric Energy, Inc. will continue as a going concern. As discussed in Note 8
to the financial statements, Lyric has been relatively inactive during the
past three years due to an lack of operating assets and working capital and a
significant deficiency in assets and equity. These factors raise substantial
doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 8.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
Robert Early & Company, P.C.
Abilene, Texas
July 18, 1997
2500 S. Willis-Suite 200-Abilene, TX 79605-(915) 691-5790
INDEPENDENT AUDITOR'S REPORT
The board of Directors and Stockholders
Lyric Energy, Inc.:
We have audited the accompanying balance sheet of Lyric Energy, Inc. as of
April 30, 1996, and the related statements of operations, changes in
stockholders' equity/(deficiency) and cash flows for the year 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the 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 audit provides 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 Lyric Energy, Inc. as of
April 30, 1996, and results of its operations and its cash flows for the year
then ended, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 8 to the
financial statements, the Company has been relatively inactive during the past
two years due to a lack of operating assets and working capital and a
significant deficiency in assets. These factors raise substantial doubt about
the Company's ability to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome
of this uncertainty.
WILSON, HAAG & CO., P.C.
January 10, 1997 (except for certain
information in note 3 as to which
the date is March 17, 1997)
Amarillo, Texas
LYRIC ENERGY, INC.
(A Development Stage Enterprise)
Balance Sheets
April 30, 1997 and 1996
1997 1996
Assets
Cash $ - $ 1,453
____________ ____________
____________ ____________
Liabilities and Stockholders' Equity/(Deficiency)
Liabilities
Accounts payable trade including $48,811 due to
related parties $ - $ 65,860
Accrued interest payable to related parties - 119,258
Advances and amounts due related parties - 88,907
Judgement payable to a related party - 250,000
____________ ____________
Total Current Liabilities - 524,025
Stockholders' Equity/(Deficiency)
Common stock, $.01 stated value (250,000,000
shares authorized, 250,000,000 and
46,958,483 outstanding) 2,500,000 469,584
Additional paid-in capital 224,222 1,690,545
Retained (deficit) (2,724,222) (2,682,701)
____________ ____________
Total Stockholders' Equity/(Deficiency) - (522,572)
____________ ____________
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ - $ 1,453
____________ ____________
____________ ____________
The accompanying notes are an integral part of these financial statements.
LYRIC ENERGY, INC.
(A Development Stage Enterprise)
Statements of Operations
For the years ended April 30, 1997 and 1996
Cumulative
During the
Development
Stage 1997 1996
General and administrative expenses $ (35,536) $ (35,593) $ (906)
Interest expense to related parties (1,482) (5,928) (8,891)
____________ ____________ ____________
NET (LOSS) $ (37,018) $ (41,521) $ (9,797)
____________ ____________ ____________
____________ ____________ ____________
Net loss per weighted average share $ (0.00) $ (0.00) $ (0.00)
____________ ____________ ____________
____________ ____________ ____________
Weighted average shares outstanding 74,582,792 58,084,045 46,958,483
____________ ____________ ____________
____________ ____________ ____________
The accompanying notes are an integral part of these financial statements.
LYRIC ENERGY, INC.
(A Development Stage Enterprise)
Statement of Changes in Stockholders' Equity/(Deficiency)
For the years ended April 30, 1997 and 1996
Date of Common Stock
Transaction Shares Amount
BALANCES, April 30, 1995 46,958,483 $ 469,584
Net (loss) - -
___________ ____________
BALANCES, April 30, 1996 46,958,483 469,584
Capital contributed by related
parties through cancellation 12/15/96 &
of debts 01/15/97 - -
Stock issued for Cash
(conversion from note) 04/10/97 203,041,517 2,030,416
Net (loss) - -
___________ ____________
BALANCES, April 30, 1997 250,000,000 $ 2,500,000
___________ ____________
___________ ____________
The accompanying notes are an integral part of these financial statements.
LYRIC ENERGY, INC.
(A Development Stage Enterprise)
Statement of Changes in Stockholders' Equity/(Deficiency) (Contd.)
For the years ended April 30, 1997 and 1996
Deficit
Accumulated
Additional Accumulated During the
Paid-In Earnings Development
Capital (Deficit) Stage
BALANCES, April 30, 1995 $ 1,690,545 $(2,672,904) $ -
Net (loss) - (9,797) -
____________ ____________ ____________
BALANCES, April 30, 1996 1,690,545 (2,682,701) _
Capital contributed by related
parties through cancellation
of debts 464,093 -
Stock issued for Cash
(conversion from note) (1,930,416) -
Net (loss) - (41,521) (37,018)
_____________ ____________ ____________
BALANCES, April 30, 1997 $ 224,222 $(2,724,222) $ (37,018)
_____________ ____________ ____________
_____________ ____________ ____________
The accompanying notes are an integral part of these financial statements.
LYRIC ENERGY, INC.
(A Development Stage Enterprise)
Statements of Cash Flows
For the years ended April 30, 1997 and 1996
Cumulative
During the
Development
Stage 1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (37,018) $ (41,521) $ (9,797)
Adjustments to reconcile net income/
(loss) to net cash provided by
operations:
Increase/(decrease) in:
Accounts payable (64,487) (65,860) 1,947
Accrued expenses 1,482 5,928 8,891
____________ ____________ ____________
NET CASH (USED) BY OPERATING ACTIVITIES (100,023) (101,453) 1,041
____________ ____________ ____________
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable 100,000 100,000 -
____________ ____________ ____________
Increase/(decrease) in cash for
period (23) (1,453) 1,041
Cash, Beginning of period 23 1,453 412
____________ ____________ ____________
Cash, End of period $ - $ - $ 1,453
____________ ____________ ____________
____________ ____________ ____________
Supplemental Disclosures:
Cash payments for:
Interest $ - $ - $ -
Income taxes - - -
Cancellation of related party and
other indebtedness $ 458,166 $ 458,166 $ -
Stock issued for conversion of note
payable $ 100,000 $ 100,000 $ -
The accompanying notes are an integral part of these financial statements.
LYRIC ENERGY, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
April 30, 1997 and 1996
GENERAL:
Lyric Energy, Inc. (the Company) is a publicly traded entity formerly involved
in the exploration and development of oil and gas reserves. At April 30, 1996
and since then, the Company has not held any interests in oil and gas
properties. The Company was incorporated on April 25, 1980 and began
operations then. The Company has been essentially dormant since April 1994.
During the year ended April 1996, the Company began seeking a merger partner
and this pursuit has been its primary activity since that time.
Development Stage Enterprise -- The Company returned to the development stage
in November 1996 with the transfer of its final operating responsibility to
others and, thereby, reducing its activities to the sole pursuit of
identifying, evaluating, structuring, and completing a merger with or
acquisition of a privately owned entity.
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of the Company conform with generally
accepted accounting principles.
Loss per Share -- Loss per share is calculated by applying the treasury stock
method using weighted average shares outstanding. Weighted average shares are
presented on the face of the statement of operations. The 203,041,517 shares
issued to Natural Gas Technologies, Inc.(discussed below) were considered to
be outstanding effective April 10, 1997.
Cash Flows -- The Company considers cash to be its only cash equivalent for
purposes of presenting its Statement of Cash Flows.
Use of Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
NOTE 2: RELATED PARTY TRANSACTIONS
As of December 31,1996, the Company was obligated to repay an advance from a
related party (ML&C Trust) consisting of an unsecured 10% demand note payable
of $88,907. ML&C Trust is controlled by a significant shareholder of the
Company. Interest expense of $5,928 and $8,891 was incurred on this advance
during the years ended April 30, 1997 and 1996, respectively. In January
1997, the Company received a capital contribution through the release of its
obligation to repay this advance. The amount of the contribution included all
interest which had accrued under the terms of the note.
The Company had a $250,000 judgement payable to a related party (Dynamic
Investing, Inc.) at November 30, 1996. The underlying judgement occurred in
1993. Dynamic Investing, Inc. is owned by the president of the Company. In
December 1996, the Company received a capital contribution through the release
of this judgement from the related party at no cost to the Company.
The Company had a total of $501,261 owed to related parties arising from the
advance, accrued interest, and judgment described above as well as other
amounts received to cover general expenses. Essentially all of this
indebtedness was contributed as additional paid in capital during December
1996 and January 1997.
NOTE 3: MERGER AGREEMENT WITH NATURAL GAS TECHNOLOGIES, INC.
On January 2, 1997, the Company entered into a Letter of Intent (LOI), amended
subsequently via a supplemental letter dated March 17,1997, with Natural Gas
TechnoIogies, Inc., a Texas corporation. In accordance with the LOI, NGT
loaned the Company $100,000 pursuant to a non-interest bearing, convertible
note dated February 4, 1997 (Note), and the loaned funds were placed in
escrow. The Note was converted on April 10, 1997 into 203,041,517 common
shares, which were all of the remaining authorized but unissued common shares
of the Company. Conversion occurred after the Company had filed all of the
required reports pursuant to the Securities Exchange Act of 1934, as amended,
and after the Company had obtained a waiver from a bank of the Company's
commitment in connection with a compromise and settlement agreement related to
a bank debt forgiveness in July 1991. This commitment was the maintenance of
the bank's ownership interest at a constant 8.9976% through issuance of
additional common stock as needed. Upon conversion, loaned funds were
released from escrow to the Company for use in satisfying all existing debts
and encumbrances and settling all claims against it.
The LOI further provides for a share exchange transaction whereby the
shareholders of NGT are to be issued additional shares in the Company such
that these shareholders will own a total of 95 percent of the total issued and
outstanding common shares of the Company and NGT would become a wholly owned
subsidiary of the Company. This ratio of ownership between NGT shareholders
and the previous shareholders is for NGT shareholders and for transactions
effective April 1, 1997 and prior. Subsequent transactions in NGT shares are
not included in this ratio and must be approved as to value by the Board of
Directors of the Company. The share exchange will occur after the Company
holds a shareholder meeting for the purpose of (I) approving a reverse split
of the Company's common stock which will result in additional common shares
being made available in order to issue shares in the shares exchange; (ii)
authorizing 10,000,000 shares of no par value preferred stock (Approximately
25,000 of these will be designated for exchange with NGT preferred
shareholders in the share exchange and the remaining 9,975,000 will be
reserved for future issuance at the discretion of the Board of Directors.);
and (iii) approving certain other amendments to the Company's Articles of
Incorporation.
NOTE 4: PRO FORMA COMBINED FINANCIAL INFORMATION
The following table sets forth the pro forma combined balance sheet and
results of combined operations of the Company and NGT as though the entities
had been combined for the entire year. These combined statements presume that
the Company will acquire 100% of the outstanding common and preferred shares
of NGT in exchange for the issuance of previously unissued shares. This
issuance, coupled with the conversion of the note as described above into
Company shares will cause NGT shareholders as of April 2, 1997 to own 95% of
the Company. NGT is to return the shares it received in the note conversion
to the Company for distribution to NGT stockholders as part of the share
exchange. This transaction qualifies as a purchase for accounting purposes.
However, the transaction also is considered to be a reverse merger whereby NGT
will be considered to be the acquirer for accounting purposes. As such, there
are no adjustments to the carrying value of NGT assets and liabilities to
reflect current fair values and the Company has no assets and liabilities that
require adjustment.
As mentioned above, a portion of the transaction agreement calls for the
Company to reverse split its outstanding shares after the note conversion by a
factor of one share for 240.597 shares. The following table presents
summarized audited balance sheets for the two entities at April 30, 1997 and
the pro forma results of the combination. Estimated adjustments to the
balance sheet required as a direct result of the acquisition plan and the
transactions contemplated therein consist solely of the adjustments required
due to the reverse stock split and the issuance of new shares by the Company
to the NGT shareholders. There are no balance sheet eliminations due to
consolidation because there are no intercompany balances.
The second table presents pro forma results of operations for the combined
entities. The adjustments consist of the elimination of the non-recurring
transactions of the Company during the year.
Pro Forma Combined Balance Sheet
Lyric NGT
Assets
Current assets - 820,132
Fixed assets (net of depreciation
and depletion - 8,558,348
Other assets - 474,260
____________ ____________
Total Assets $ - $ 9,852,740
____________ ____________
____________ ____________
Liabilities and Equity
Liabilities:
Current liabilities - 425,305
Notes payable - 3,000,000
Redeemable Preferred A stock - 38,388
Minority interest in subsidiary - 28,427
Stockholders' equity:
Preferred B stock - 265,440
Common stock 2,500,000 4,014
Additional paid in capital 224,222 7,322,860
Deferred services and stock
receivable - (319,000)
Retained (deficit) (2,724,222) (912,694)
____________ ____________
Total stockholders' equity - 6,360,620
____________ ____________
Total Liabilities and
Stockholders' Equity $ - $ 9,852,740
____________ ____________
____________ ____________
Pro Forma Results of Operations
Lyric NGT
Revenues $ - $ 100,987
____________ ____________
LOE and production taxes - 103,646
Depreciation, depletion and
amortization - 50,394
Management and consulting costs 35,000 80,000
Legal and professional - 44,816
Other expenses 593 49,668
____________ ____________
Total operating expenses 35,593 328,524
____________ ____________
(Loss from Operations) (35,593) (227,537)
Interest income - 715
Interest expense (5,928) (43,648)
____________ ____________
Net (Loss) $ (41,521) $ (270,470)
____________ ____________
____________ ____________
Net (Loss) per share
Pro Forma Combined Balance Sheet (Contd.)
Adjust- Pro Forma
ments Combined
Assets
Current assets - 820,132
Fixed assets (net of depreciation
and depletion - 8,558,348
Other assets - 474,260
____________ ____________
Total Assets $ - $ 9,852,740
____________ ____________
____________ ____________
Liabilities and Equity
Liabilities:
Current liabilities - 425,305
Notes payable - 3,000,000
Redeemable Preferred A stock - 38,388
Minority interest in subsidiary (28,427) -
Stockholders' equity:
Preferred B stock - 265,440
Common stock (2,461,898) 42,116
Additional paid in capital (233,897) 7,313,185
Deferred services and stock
receivable - (319,000)
Retained (deficit) 2,724,222 (912,694)
____________ ____________
Total stockholders' equity 28,427 6,389,047
____________ ____________
Total Liabilities and
Stockholders' Equity $ - $ 9,852,740
____________ ____________
____________ ____________
Pro Forma Results of Operations (Contd.)
Adjust- Pro Forma
ments Combined
Revenues $ - $ 100,987
____________ ____________
LOE and production taxes - 103,646
Depreciation, depletion and
amortization - 50,394
Management and consulting costs (35,000) 80,000
Legal and professional - 44,816
Other expenses (593) 49,668
____________ ____________
Total operating expenses (35,593) 328,524
____________ ____________
(Loss from Operations) 35,593 (227,537)
Interest income - 715
Interest expense 5,928 (43,648)
____________ ____________
Net (Loss) $ 41,521 $ (270,470)
____________ ____________
____________ ____________
Net (Loss) per share $ (.07)
____________
____________
NOTE 5: INCOME TAXES
As of April 30, 1997 and 1996, Lyric had accumulated deficits of $2,724,222
and $2,682,701. However, operating loss carry-forwards for income tax
purposes vary from these amounts due to differences in the tax treatment of
various items. These loss carry-forwards, which may provide future benefits,
expire as shown in the following table. Investment tax credits are accounted
for on the flow through method. A merger or acquisition will, in all
likelihood, limit the availability of these net operating losses as deductions
against future taxable income of a combined entity.
Amount of
Operating Loss Investment
Year of Carry- Year of Tax Credit
Expiration Forwards Expiration Carry-Forwards
2001 $ 139,783 1998 $ 6,000
2002 201,086 2001 1,000
____________
2003 238,676 $ 7,000
____________
____________
2004 257,086
2005 354,420
2006 305,119
2007 839,730
2008 220,172
2009 78,986
2010 78,980
2011 37,018
____________
$ 2,751,056
____________
____________
The provision for income tax is as follows:
1997 1996
Current
Federal $ - $ -
Deferred
Federal (935,359) (922,773)
Less allowance 935,359 922,773
____________ ____________
Total $ - $ -
____________ ____________
____________ ____________
A reconciliation of income tax at the statutory rate to the Company's
effective rate at April 30, 1997 and 1996 indicates that the expected
statutory rate for each of these years is 0%. The effective tax rate is also
0%.
The deferred tax asset and liabilities are comprised of the following at April
30, 1997 and 1996:
1997 1996
Assets Liabilities Assets Liabilities
Net operating losses
carried forward $ 935,359 - 922,773 -
Less valuation
allowance (935,359) - (922,773) -
___________ ____________ __________ ____________
Gross deferred tax
assets and
liabilities $ - $ - $ - $ -
___________ ____________ __________ ____________
___________ ____________ __________ ____________
Due to the way future utilization of tax benefits is analyzed under SFAS 109,
an allowance for the full amount of the benefits that may arise from operating
loss carry-forwards has been made and no asset has been recorded as a result
at April 30, 1997.
NOTE 6: CONTINGENCY
The Company has been contesting a suit to recover legal fees and court costs
pertaining to a previous action. This case was tried and on April 23, 1997,
the court awarded a judgment totaling approximately $59,905, including
interest. The Company was not the sole defendant in this case, although the
liability is joint and several, and the judgment is expected to be appealed.
Additionally, Lyric has obtained an indemnification agreement against loss
from Stahl Petroleum Company, another defendant in the suit and previously a
related party. Management anticipates that this action will have no effect on
the Company.
NOTE 7: SUBSEQUENT EVENTS
All subsequent events relate to transactions incurred by NGT. The notes of
NGT's financial statements should be read in conjunction with these notes for
a description of subsequent events.
NOTE 8: GOING CONCERN
The Company has been relatively inactive during the past three years due to a
shortage of operating assets and working capital. Additionally, the Company
has been operating under significant debt load. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
The Company reentered the development stage in November 1996 when it
transferred its last operations to another operator and reinforced its search
for a merger or acquisition target in order to carry on the operations of the
target Company. The Company signed a Letter of Intent to merge with Natural
Gas Technologies, Inc. (NGT) in January 1997. In April 1997, NGT acquired an
81% ownership interest in the Company in a first step toward a merger. The
ability of the Company to continue as a going concern is dependent on the
completion of this transaction. There are no adjustments of financial
statement information required should the Company be unable to continue as a
going concern.
NATURAL GAS TECHNOLOGIES, INC.
and SUBSIDIARIES
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended
April 30, 1997 and 1996
ROBERT EARLY & COMPANY, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
NATURAL GAS TECHNOLOGIES, INC.
Abilene, Texas
We have audited the accompanying consolidated balance sheets of Natural Gas
Technologies, Inc. and Subsidiaries as of April 30, 1997 and 1996 and the
related consolidated statements of operations, changes in shareholders'
equity/(deficit) and cash flows for the years then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Natural
Gas Technologies, Inc. and Subsidiaries as of April 30, 1997 and 1996, and the
results of their operations and cash flows for the years then ended, in
conformity with generally accepted accounting principles.
Robert Early & Company, P.C.
Abilene, Texas
July 18, 1997
2500 S. Willis-Suite 200-Abilene, TX 79605-(915) 691-5790
NATURAL GAS TECHNOLOGIES, INC. & SUBSIDIARIES
Balance Sheets
April 30, 1997 and 1996
1997 1996
Assets
Current Assets:
Cash $ 816,725 $ 506
Accounts receivable 3,407 -
____________ ____________
Total Current Assets 820,132 506
____________ ____________
Fixed Assets:
Oil and gas properties (full cost method,
$637,496 has been excluded from amortization
as an unproved cost) 8,632,425 1,473,333
Accumulated depreciation and depletion (114,077) (64,926)
Equipment not in service 40,000 -
____________ ____________
Total fixed assets 8,558,348 1,408,407
____________ ____________
Other Assets:
Patent and product license (net of amortization
of $2,000) 358,000 -
Investment in Wagman Petroleum, Inc. stock 14,464 14,464
Security deposit 3,049 -
Goodwill (net of amortization of $1,667) 98,333 -
Organizational costs (net of amortization of
$1,496 and $1,114) 414 796
____________ ____________
Total Other Assets 474,260 15,260
____________ ____________
TOTAL ASSETS $ 9,852,740 $ 1,424,173
____________ ____________
____________ ____________
Liabilities and Stockholders' Equity
Liabilities
Accounts payable (primarily to related
party) $ 291,031 $ 38,205
Accrued interest 40,109 80
Advances and amounts due officers 1,136 -
Note payable to related party 79,067 -
Current portion of notes payable 13,962 18,794
____________ ____________
Total Current Liabilities 425,305 57,079
Notes payable (net of current portion) 3,000,000 15,434
____________ ____________
TOTAL LIABILITIES 3,425,305 72,513
____________ ____________
Redeemable Preferred stock, 1994 Series A
$4.00 par value (500,000 shares authorized,
9,597 outstanding) 38,388 38,388
Minority interest in consolidated subsidiary 28,427 -
Stockholders's Equity
Preferred stock, 1994 Series B $4.00 par
value (500,000 shares authorized, 66,360
and 210,736 outstanding) 265,440 842,944
Common stock, $.001 par value (10,000,000
shares authorized, 4,014,390 and
2,805,014 outstanding) 4,014 2,806
Additional paid-in capital 7,322,860 1,181,564
Deferred services and director fees (160,000) (100,833)
Receivable for stock issued to officers (159,000) -
Retained (deficit) (912,694) (613,209)
____________ ____________
Total Stockholders' Equity 6,360,620 1,313,272
____________ ____________
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 9,852,740 $ 1,424,173
____________ ____________
____________ ____________
The accompanying notes are an integral part of these financial statements.
NATURAL GAS TECHNOLOGIES, INC. & SUBSIDIARIES
Statements of Operations
For the years ended April 30, 1997 and 1996
1997 1996
Oil and gas revenues $ 100,987 $ 133,030
Other income 5 3,915
____________ ____________
Total Revenues 100,992 136,945
____________ ____________
Expenses:
Production taxes 5,191 4,608
Lease operating expenses 98,455 114,410
Depreciation, depletion and amortization 50,394 40,962
Professional fees 44,816 10,571
Management and consulting fees 115,000 90,000
Rent 7,249 4,200
Printing and distribution 1,015 2,092
Director fees 20,833 50,000
Taxes 3,658 1,885
Travel 7,610 250
Offering costs - 4,000
Other expenses 9,896 6,591
Minority interest in loss of consolidated
subsidiary (6,573) -
____________ ____________
Total Expenses 357,544 329,569
____________ ____________
(Loss) from Operations (256,552) (192,624)
Interest income 715 -
Interest expense (43,648) (28,207)
____________ ____________
NET (LOSS) (299,485) (220,831)
Less unpaid preferred stock dividend
claims for the year 9,604 9,604
____________ ____________
Net (loss) attributable to common
shareholders $ (309,089) $ (230,435)
____________ ____________
____________ ____________
(Loss) per share data:
Primary $ (0.11) $ (0.09)
____________ ____________
____________ ____________
Primary, attributable to common shares (0.10) (0.10)
____________ ____________
____________ ____________
Fully diluted $ (0.10) $ (0.08)
____________ ____________
____________ ____________
Fully diluted, attributable to common
shareholders (0.11) (0.09)
____________ ____________
____________ ____________
The accompanying notes are an integral part of these financial statements.
NATURAL GAS TECHNOLOGIES, INC. & SUBSIDIARIES
Statement of Changes in Stockholders' Equity
For the years ended April 30, 1997 and 1996
Preferred Stock
Series 1994-A Series 1994-B
Shares Amount Shares Amount
BALANCES, April 30, 1995 9,597 $ 38,388 210,736 $ 842,944
Stock issued for:
Related party liabilities - - - -
Oil and gas interests - - - -
Liabilities to third parties - - - -
Promotional services - - - -
Net (loss) - - - -
__________ __________ __________ __________
BALANCES, April 30, 1996 9,597 38,388 210,736 842,944
Stock issued for:
Cash - - - -
Deferred promotional
services - - - -
Oil and gas interests - - - -
Stock of Interior Energy,
Inc. - - - -
Patent license - - 50,000 200,000
Conversion of preferred to
common - - (194,376) (777,504)
Net (loss) - - - -
__________ __________ __________ __________
BALANCES, April 30, 1997 9,597 $ 38,388 66,360 $ 265,440
__________ __________ __________ __________
__________ __________ __________ __________
The accompanying notes are an integral part of these financial statements.
NATURAL GAS TECHNOLOGIES, INC. & SUBSIDIARIES
Statement of Changes in Stockholders' Equity (Contd.)
For the years ended April 30, 1997 and 1996
Common Stock
Shares Amount
BALANCES, April 30, 1995 2,190,130 $ 2,190
Stock issued for:
Related party liabilities 381,655 382
Oil and gas interests 22,624 23
Liabilities to third parties 10,605 11
Promotional services 200,000 200
Net (loss) - -
___________ ____________
BALANCES, April 30, 1996 2,805,014 2,806
Stock issued for:
Cash 225,000 225
Deferred promotional
services 200,000 200
Oil and gas interests 120,000 120
Stock of Interior Energy,
Inc. 370,000 370
Patent license 100,000 100
Conversion of preferred to
common 194,376 193
Net (loss) - -
___________ ____________
BALANCES, April 30, 1997 4,014,390 $ 4,014
___________ ____________
___________ ____________
The accompanying notes are an integral part of these financial statements.
NATURAL GAS TECHNOLOGIES, INC. & SUBSIDIARIES
Statement of Changes in Stockholders' Equity (Contd.)
For the years ended April 30, 1997 and 1996
Additional Deferred Accumulated
Paid-In Services & Earnings
Capital Other (Deficit)
BALANCES, April 30, 1995 $ 332,712 $ (70,833) $ (392,378)
Stock issued for:
Related party liabilities 622,605 - -
Oil and gas interests 45,226 - -
Liabilities to third parties 21,221 - -
Promotional services 159,800 (80,000) -
Net (loss) - 50,000 (220,831)
____________ ____________ ____________
BALANCES, April 30, 1996 1,181,564 (100,833) (613,209)
Stock issued for:
Cash 1,574,775 (159,000) -
Deferred promotional
services 159,800 (160,000) -
Oil and gas interests 839,880 - -
Stock of Interior Energy,
Inc. 2,589,630 - -
Patent license 199,900 - -
Conversion of preferred to
common 777,311 - -
Net (loss) - 100,833 (299,485)
____________ ____________ ____________
BALANCES, April 30, 1997 $ 7,322,860 $ (319,000) $ (912,694)
____________ ____________ ____________
____________ ____________ ____________
The accompanying notes are an integral part of these financial statements.
NATURAL GAS TECHNOLOGIES, INC. & SUBSIDIARIES
Statements of Cash Flows
For the years ended April 30, 1997 and 1996
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (299,485) $ (220,831)
Adjustments to reconcile net income/(loss) to
net cash provided by operations:
Depreciation, depletion and amortization 50,394 40,962
Amortization of directors fees 20,833 50,000
Recognition of deferred services as
consulting fees 80,000 80,000
Stock issued to related party as interest
payment - 24,681
(Increase)/decrease in:
Accounts receivable (3,407) -
Security deposit (3,049)
Increase/(decrease) in:
Accounts payable 252,826 21,975
Accrued expenses 40,029 (32,033)
Minority interests 28,427 -
____________ ____________
NET CASH (USED) BY OPERATING ACTIVITIES 166,568 (35,246)
____________ ____________
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for drilling costs and oil & gas
leases (679,042) -
Purchase of lease and well equipment (47,244) (22,226)
Goodwill acquired in Lyric Energy
acquisition (100,000) -
____________ ____________
NET CASH (USED) BY INVESTING ACTIVITIES (826,286) (22,226)
____________ ____________
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock 1,416,000 -
Advances from related parties 80,203 23,730
Note proceeds - 35,000
Note payments (20,266) (771)
____________ ____________
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,475,937 57,959
____________ ____________
Increase/(decrease) in cash for period 816,219 487
Cash, Beginning of period 506 19
Cash, End of period $ 816,725 $ 506
____________ ____________
____________ ____________
Supplemental Disclosures:
Cash payments for:
Interest $ 2,525 $ 772
Income taxes - -
Stock issued for:
Professional services $ - $ 80,000
Prepaid professional services 160,000 80,000
Oil and gas properties 840,000 49,157
Acquisition of Interior Energy, Inc. 2,603,043 -
Reductions of accounts, notes, and
interest payable - 644,218
Acquisition of patent license and
related equipment 400,000 -
Assumption of debt related to oil and gas
properties 3,000,000 -
The accompanying notes are an integral part of these financial statements.
NATURAL GAS TECHNOLOGIES, INC. & SUBSIDIARIES
Notes to Consolidate Financial Statements
April 30, 1997 and 1996
GENERAL:
Natural Gas Technologies, Inc. (NGT or "the Company") was incorporated on
April 26, 1993 and began operations in June 1993. NGT acquired interests in
various oil and gas properties in February and June 1994 and has been active
in this industry since then. The nature of the oil and gas industry lends
itself to uncertainties and risks. During the years presented, NGT's
producing interests were primarily concentrated in Central West Texas. During
the year ended April 1997, the Company has acquired oil and gas properties
with significant reserves. (See Note 6.) The Company has also acquired a
license for a patented blending procedure for automotive fuel. (See Note 8.)
Subsequent to April 30, 1997, NGT has drilled on a portion of its properties
with good success and has arranged to acquire additional properties.
In April 1997, NGT acquired 100% ownership of Interior Energy, Inc. (IEI) in
exchange for 370,000 shares of common stock and a cash payment of $500,000.
The primary purpose of this acquisition was to obtain a significant set of oil
leases in North Texas, the sole asset of this entity. Also in April 1997, the
Company acquired ownership of 81% of Lyric Energy, Inc. (Lyric) by converting
a $100,000 loan to unissued Lyric stock. Lyric is a publicly traded entity
that has been essentially dormant for the last three years. These
transactions are being accounted for as purchases and are described in further
detail at Note 2.
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of NGT conform with generally accepted
accounting principles and to general practices within the oil and gas
industry. Policies that materially affect the determination of financial
position, changes in financial position, and results of operations are
summarized as follows:
Fiscal year end--The Company utilizes a fiscal year ending on April 30.
Consolidation--The accompanying consolidated financial statements include the
accounts of the Company and both of its subsidiaries, IEI and Lyric.
Intercompany transactions and balances have been eliminated in consolidation.
Federal Income Taxes--For Federal income tax purposes, NGT reports its
operations on the accrual basis of accounting. Depreciation is calculated
using the MACRS percentages. First year expensing under Section 179 is
utilized when it is available and has been determined to be advantageous. For
the year ending April 30, 1997, NGT is filing a consolidated tax return with
IEI for the period after acquisition to April 30, 1997. Lyric will file a
separate return.
Statement No. 109 (SFAS 109) "Accounting for Income Taxes" requires that a
liability approach to providing for deferred taxes be used. That is, deferred
taxes must be established for all temporary differences between the book and
tax bases of assets and liabilities. (See Note 11.)
Oil and Gas Properties--The Company records its oil and gas producing
activities under the full cost method of accounting, and accordingly,
capitalizes all costs incurred in the acquisition, exploration, and
development of proved oil and gas properties, including the costs of abandoned
properties, dry holes, geophysical costs, and annual lease rentals. In
general, sales or other dispositions of oil and gas properties are accounted
for as adjustments to capitalized costs, with no gain or loss recorded until
the proceeds from dispositions exceed the Company's basis in the full cost
pool.
Depletion and amortization are computed on a composite units-of-production
method based on estimated proved reserves. All leasehold, equipment, and
intangible costs associated with oil and gas properties are currently included
in the base for computation and amortization unless the property has not been
evaluated and no estimated reserves have been included for the property in the
Company's total reserves. Approximately 17% of the Company's proved reserves
were estimated by Company personnel based on previous work done by a petroleum
engineer. The remainder of the Company's reserves were reviewed and estimated
by a registered petroleum engineer. Included in these properties reviewed by
the engineer were significant acquisitions during the current year. All of
the Company's reserves are located within the United States.
Earnings per Share--Primary earnings per share are computed on the basis of
weighted average number of common shares actually outstanding. Fully diluted
earnings per share are computed based on the increased number of shares that
would be outstanding assuming that preferred shares outstanding at the first
of the year were converted at the first of the year. Preferred shares issued
during the year are assumed to be converted on the date of issuance.
The following table presents a reconciliation of the weighted average number
of shares actually outstanding with the number of shares used in the
computation of fully diluted earnings/(loss) per share:
1997 1996
Primary
Weighted average number of shares actually
outstanding 2,860,393 2,398,254
_________ _________
_________ _________
Fully diluted
Weighted average number of shares actually
outstanding 2,860,393 2,398,254
Preferred shares 31,027 221,293
_________ _________
2,891,420 2,619,547
_________ _________
_________ _________
At the end of each of the years presented, the Company had contractually or
otherwise committed to issue common and/or preferred shares but the stock
certificates had not actually been issued. These shares have been included as
issued in the outstanding shares presented in the balance sheet and the
statement of changes in stockholders' equity. They have also been included in
weighted average earnings per share as of the effective date of the agreement
rather than the date certificates were ultimately issued.
Cash and Cash Flows--The Company considers cash to be its only cash equivalent
for purposes of presenting its Statement of Cash Flows. The Company had cash
at two banks at April 30, 1997. Accounts at each institution are insured by
the Federal Deposit Insurance Corporation up to $100,000. At April 30, 1997,
the Company had a total balance of $806,702 on deposit with Texas Central
Bank, N.A.
Amortization--Goodwill, which represents the excess of the cost of acquiring
Lyric over the fair value of its net assets at the date of acquisition, is
being amortized on the straight line method over five years.
The Company is also amortizing organization costs on the straight line method
over five years.
During the year ended April 1997, the Company acquired a patent license. This
license is discussed in more detail at Note 8. The cost attributed to the
license is being amortized over the remaining term of the patent (fifteen
years).
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Environmental Issues--The oil and gas industry is regulated in Texas by the
Texas Railroad Commission (RRC) and Texas Natural Resources Conservation
Commission. Leases are operated under permits from the RRC. Failure to
comply with regulations could result in interruption or termination of the
operations. Additionally, upon cessation of use, the wells require plugging
and site cleanup. Costs of voluntary termination and remediation have been
estimated to be insignificant on a well by well basis and are expected to be
recorded as incurred.
New Accounting Pronouncements--During the year ended April 1997, the Company
adopted the provisions of Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of" (SFAS 121) issued by the Financial Accounting Standards
Board (FASB). This standard establishes guidelines regarding when impairment
losses on long-lived assets, which includes plant and equipment and certain
identifiable intangible assets, should be recognized and how impairment losses
should be measured. No material effects on NGT's financial position or
results of operations were incurred on adoption of this standard.
Also, during the year ended April 1997, the Company adopted Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123) issued by the FASB. This standard establishes a fair
value method of accounting for stock-based compensation plans and for
transactions in which an entity acquires goods or services from non-employees
in exchange for equity instruments. The Company does not currently have any
stock based compensation plans in place and no disclosures or cost has been
made due to this fact. The Company will, should it enter into any such
plans, disclose the plan's effects in the notes in accordance with the
provisions of SFAS 123. The Company has recorded all stock transactions with
non-employees on a fair value basis has not realized any material effects on
its financial position or results of operations in adopting this standard.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128) which
is effective for the Company's fiscal year beginning April 1, 1997 (financial
statements issued after December 15, 1997). SFAS 128 specifies the
computation, presentation, and disclosure requirements for earnings per share
(EPS). Some of the changes made to current EPS standards include (I)
eliminating the presentation of primary EPS and replacing in with basic EPS,
with the principal difference being that common stock equivalents are not
considered in computing basic EPS, (ii) eliminating the modified treasury
stock method and the three present materiality provisions, and (iii) revising
the contingent share provisions and the supplemental EPS data requirements.
SFAS 128 also requires dual presentation of basic and diluted EPS on the face
of the income statement, as well as a reconciliation of the numerators and
denominators used in the two computations of EPS. Basic EPS is defined by SFAS
128 as net income from continuing operations divided by the average number of
common shares outstanding without consideration of any common stock
equivalents which may be dilutive to EPS. Implementation of SFAS is not
expected to have any material effect on the Company's EPS.
Advertising Costs--All advertising costs are expensed as incurred.
NOTE 2: INVESTMENTS IN STOCKS AND ACQUISITIONS OF SUBSIDIARIES
In 1994, NGT acquired approximately 2% of the outstanding shares of Wagman
Petroleum, Inc. (WPI) from unrelated parties in exchange for NGT common
shares. As discussed at Note 4, WPI is considered a related party. WPI is
not a subsidiary. There is no market for these shares. Their value has been
determined based on an estimate of the future value of WPI at the time of
acquisition. The Company intends to hold this investment for the foreseeable
future.
In January 1997, NGT loaned $100,000 to Lyric Energy, Inc. This loan was made
pursuant to a letter of intent to convert the loan into Lyric stock. The
conversion of the loan to stock was contingent upon Lyric bringing its public
filings up to date, clearing old liabilities, and obtaining waivers for
certain restrictive covenants. Lyric had been essentially dormant for the two
years ended April 1996 and was seeking merger candidates. The contingencies
noted in the letter of intent and in a due diligence review were all removed
and on April 10, 1997, Lyric effectively issued 203,041,517 common shares to
NGT for the conversion of the note. This resulted in NGT owning approximately
81% of the outstanding Lyric shares. Lyric is in the process of filing an
information statement with the Securities and Exchange Commission and, upon
acceptance of the filing, will hold a stockholders' meeting to approve a
reverse split, authorize preferred shares, and approve a share exchange with
NGT shareholders in order to merge the two companies. Upon completion of the
merger, Lyric will change its name to Natural Gas Technologies, Inc. Lyric is
currently publicly traded on the bulletin board system. This transaction has
been being accounted for as a purchase. As previously noted, Lyric has been
primarily dormant. Only the results of operations of this entity after the
date of acquisition are included in the accompanying financial statements.
The total cost of acquiring Lyric, as indicated above, was $100,000 which
exceeded the fair value of its net assets by $100,000. This amount has been
recognized as goodwill and is being amortized on the straight-line method over
five years.
On April 1, 1997, NGT paid $500,000 and issued 370,000 shares of common stock
for all of Interior Energy, Inc.'s (IEI) outstanding shares. NGT acquired IEI
subject to a note payable to third parties for $3,000,000 that arose from the
purchase of the Waggoner M and East Milham Sand Unit leases. As part of the
purchase, NGT assumed full liability for the balance of the note. Prior to
the acquisition of these leases, IEI had been dormant since the early 1980s.
This business combination has also been accounted for as a purchase. The
total cost of acquiring IEI was $6,090,000 including the note assumption.
This amount was attributed to the fair value of the oil properties and there
was no excess to be recognized as goodwill. The accompanying financial
statements include the activities of IEI since the date of acquisition.
Activities prior to that date have been eliminated.
The following summarized pro forma (unaudited) information assumes that both
of these acquisitions occurred on May 1, 1996. There is no impact on the
amounts which would be presented if the acquisition had occurred on May 1,
1995 because neither IEI or Lyric were carrying on activities that would be
continuing had the entities been combined during the year ended April 1996.
There were no extraordinary items to be considered.
Net revenues $ 106,316
____________
____________
Net income (319,048)
____________
____________
Earnings per share:
Primary (0.10)
____________
____________
Fully diluted (0.10)
____________
____________
NOTE 3: STOCK TRANSACTIONS
During 1993, NGT issued 150,000 common shares and options to purchase 100,000
additional shares of restricted stock at an exercise price of $4 per share to
Warren Donahue of Volvo America as compensation for his agreeing to serve as a
director of NGT for three years. These options were to commence six months
following the close of a public offering and expire four years after
commencement. Deferred Director Fees of $150,000 was recorded as a result of
this transaction. No additional costs were recorded for the options due to
the relationship of the exercise price to the stock price at the time of
issuance.
During the year ended April 1995, NGT authorized 1,000,000 preferred shares
and designated it as Series 1994-A (Preferred A) and Series 1994-B (Preferred
B). Both of these series have a 9.25% cumulative annual dividend. Preferred
A shares are convertible to common shares on a 1.1 for 1 basis and may be
called by the Company at five cents per share if the trading price of the
common shares exceeds seven dollars for twenty consecutive trading days. They
also are subject to a mandatory redemption at par five years from the
effective date of issuance. Preferred B shares automatically convert to
common on a one for one basis if the trading price of the common shares
exceeds five dollars per share for ten consecutive trading days. All of the
outstanding preferred shares became convertible at the option of the holder at
May 1, 1996.
During the year ended April 1996, NGT approved a request by its president and
WPI to issue 26,661 and 354,994 common shares, respectively, in exchange for
the complete liquidation of unreimbursed expenses, advances, accrued interest,
and the note balance due to WPI. WPI also waived its right to unpaid and
future dividends on the Preferred B shares which it held as part of the
exchange for common shares. Additionally, NGT negotiated an agreement to pay
off certain legal fees connected with an aborted offering via the issue of
10,605 common shares. It also finalized an agreement with a third party
regarding specific oil and gas interests that was effective May 1, 1995
through the issue of 22,624 common shares and the assumption of $17,000 of
unpaid lease operating expenses.
In February 1996, NGT entered into an agreement for the provision of public
relations, identification of funding sources, merger candidates, etc. services
with a third party. These services were to be rendered over a primary period
ending in December 1996 with provisions for extensions as approved by both
parties. The agreement called for a cash payment of $25,000 and 500,000
shares of stock. The shares were to be issued on a milestone basis with
200,000 shares issued at the commencement of the agreement. One-half of the
original shares were for services to be rendered after April 30, 1996, were
recorded as Deferred Services at that date, and have been included in expenses
during the year ended April 1997. An additional 200,000 shares were issued
during April 1997 in anticipation of meeting additional milestones after the
fiscal year end and have been reported as Deferred Services at April 30, 1997.
The remaining 100,000 shares called for under this agreement are to be issued
after the achievement of specified events. The agreement calls for all of
these shares to be registered in any registration pursued by NGT.
During the year ended April 1997, the Company issued 225,000 common shares to
its directors on the basis of $7 per share. Of the total $1,575,000 to be
received, the directors did not pay $159,000 until June 1997, after the year
end. Due to the relationship of this receivable to stock issuance, it has
been presented as an offset in Stockholder's Equity until collected.
Additionally, the Company issued 120,000 common shares to Ray L, Inc., valued
at $7 per share, and assumed a Ray L, Inc. liability to WPI of $18,000, for
oil and gas leases in Runnels County, Texas. A license to use patented
processes and facilities (see Note 8) was acquired for 50,000 Preferred B
shares and 100,000 common shares. The Company also issued 370,000 common
shares for the stock of Interior Energy and 200,000 common shares for deferred
services.
NOTE 4: TRANSACTIONS WITH RELATED PARTIES
Through March 31, 1997, NGT reimbursed WPI for rent, postage, travel and other
office expenses. The Company's president owns approximately 45% of the
outstanding stock of WPI and also serves as its president. Office rent
reimbursement to WPI totaled $4,200 for both 1997 and 1996. Other reimbursed
costs are not material. Additionally, WPI operates essentially all of the
properties in which NGT has interests. As operator, WPI incurs expenses for
drilling, reworking, and normal lease operating expenses and then charges them
out to the respective interest owners. Currently, WPI collects a portion of
NGT's gas production revenues and offsets them against amounts that are due
from NGT. At April 30, 1997 and 1996, NGT owed WPI $134,982 and $5,206,
respectively, for accounts payable. The bulk of the balance at 4/30/97 is due
to drilling and reworking on the properties that NGT has recently acquired and
reworking interests previously held which occurred during March and April
1997. WPI also advanced funds to NGT for other expenses during March 1997.
These advances were reduced to a demand note for $79,067 effective April 30,
1997. This note bears interest at 5% per annum.
During the year ended April 1996, a note payable to WPI with a balance of
$396,988, accrued interest of $24,681, and other liabilities owed to WPI in
the amount of $89,997 were repaid through the issuance of 354,994 common
shares. As part of this transaction, WPI also waived its rights to unpaid
past and future dividends on the Preferred B shares it held. Additionally
during the year ended April 1996, the Company's president accepted 26,661
shares as payment for unreimbursed expenses and cash advances in lieu of cash
repayments.
During the year ended April 1997, the Company's directors acquired stock (as
discussed at Note 3), loaned funds to the Company, and were reimbursed for
business expenses. During February 1997, the directors loaned $100,000 based
on a demand note bearing interest at 5% per annum. In April 1997, this note
was converted as partial payment for the stock issued to them as described at
Note 3. Interest expense of $1,014 was incurred during the period this note
was outstanding.
NOTE 5: NOTES PAYABLE
During February 1996, the Company borrowed $35,000 from a bank in order to
finance certain reworking expenses. This note bears interest at 10.5% and is
due in twenty-four installments of $1,625 per month including interest. NGT
gave its interest in the wells being reworked as collateral for this note. At
April 30, 1997 and 1996, this note had balances of $13,962 and $34,228,
respectively. The final maturity date is February 1998.
In April 1997, as part of its acquisition of IEI, NGT assumed liability for a
note payable to EXP, Inc. with an original face amount of $3,475,000. This
note originated with the purchase of the Waggoner M and East Milham Sand Unit
leases by IEI. The note is due March 1, 1999 with no specified payments due
prior to maturity although prepayment is allowed. It bears interest at 8%
per annum simple interest and had a balance of $3,000,000 at April 30, 1997.
Interest expense accrued on this note at April 30, 1997 totaled $40,110.
The Company also had notes payable to its directors and WPI during the year
and as of April 30, 1997. (See Note 3.)
NOTE 6: OIL AND GAS PROPERTIES
NGT acquired interests in oil and gas properties from WPI during February 1994
which were recorded at predecessor cost in accordance with related party
transaction requirements. Effective in July 1994, the Company acquired
additional interests in these same properties from unrelated third parties in
exchange for stock. These interests are all located in Central West Texas.
During March 1997, IEI acquired the leases making up two proved properties in
Wilbarger County, Texas. These leases both have produced oil for a number of
years. One of these leases, the Waggoner M lease (M lease), is currently only
producing at the minimum level required to keep the lease from expiring for
lack of activity. The other leases comprise the East Milham Sand Unit
(EMSU). The EMSU has had limited production in recent years. However,
engineering studies have indicated that these leases should still have
significant reserves available using secondary production methods such as
enhanced water flooding. Engineering estimates have indicated reserves under
the EMSU at 885,466 barrels with future net cash flows projected at
$11,255,610 and a discounted net present value of $6,850,800. No current
study has been done for the M lease, although older estimates and production
records indicate that it should have producible reserves in the 150,000 barrel
range. These leases also contained removable equipment valued at $785,523 at
the time of acquisition. Interior Energy was acquired April 1, 1997 by NGT
for stock, cash, and debt assumption valued at $6,090,000, as discussed at
Note 2. All of this value is attributed to the properties described in this
paragraph in these consolidated financial statements. Management has
allocated $500,000 of this price to the unevaluated reserves on the M lease.
After subtracting this amount and equipment on the M lease valued at $137,496,
the balance has been allocated to the EMSU and its equipment. The M lease is
expected to be reworked and brought into production within the year ended
April 1998.
In April 1997, NGT acquired a 50% interest in five leases from Ray L, Inc. in
northern Runnels County, Texas (the Norton prospect) in exchange for the
assumption of a liability to WPI of $18,000 and issuance of 120,000 shares of
common stock valued at $840,000. This prospect consists of inner drilling in
a field that had never been fully developed during 20 years of production.
The field was essentially plugged and abandoned due to high costs of disposing
of significant quantities of salt water and low prices for oil. Management
has obtained engineering studies that indicate that current technology will
allow improved recovery of oil in the undrilled locations. The Company
completed two wells subsequent to April 1997 that have confirmed engineering
estimates for the known producing zones. However, geology studies had
indicated a deeper zone with hydrocarbon potential and the wells were drilled
on down to test the deeper zone. Drill stem tests indicated that this deeper
zone contains producible gas quantities. Management has not decided whether
to produce the deeper zone first or to produce out of the shallower,
previously known zone first. Engineering estimates have indicated that this
prospect should contain reserves of 303,941 barrels of oil in the previously
known zone. No estimates of the gas reserves contained by the deeper zone have
been made at this time. The Company has also drilled a service well to deal
with the water problem. Future net cash flows are estimated at $3,058,657
with a net present value of $1,189,141.
Recovery of the Company's newly acquired reserves will require significant
capital expenditures. Although the Company is not committed to make these
expenditures by contract or other agreement, realization of the benefits of
these reserves in the near future will require the Company to obtain
significant external financing or to sell portions of its reserves in order to
fund development of other reserves. There is no assurance that such capital
will be obtained or that there will be buyers for properties offered for sale.
NOTE 7: PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at April 30, 1997 and 1996:
1997 1996
Oil and gas properties:
Leasehold and capitalized IDC $ 7,770,155 $ 1,443,830
Lease and well equipment 862,270 29,503
Blending tower 40,000 -
____________ ____________
8,672,425 1,473,333
Less accumulated depletion (114,077) (64,926)
____________ ____________
$ 8,558,348 $ 1,408,407
____________ ____________
____________ ____________
Depletion totaled $49,151 and $40,580 for the years ended April 1997 and 1996,
respectively. Equipment costs totaling $40,000 were idle and were not being
depreciated. This $40,000 consisted of a blending tower acquired with the
patent license. Costs associated with the M lease totaling $637,496 were
considered to be out of service and were excluded from the depletion
calculation. The M lease is expected to be placed in service during the 1998
fiscal year. The blending tower will be utilized as that aspect of the
Company's business is developed. The timetable has not be set, but it is
anticipated that utilization will occur within the 1998 fiscal year. There
are further discussions of the oil and gas properties at Note 6 and the
blending license below.
NOTE 8: ACQUISITION OF PATENT LICENSE
During October 1996, the Company acquired a license to a patented blending
process for the blending of automobile fuel. Although this process has not
been tested on a large scale, the Company has had chemical engineers review
the process and has reviewed the results of limited operations of the original
license holder. These reviews have indicated that the concept is viable and
that this fuel blend should be producible at a cost which will provide an
acceptable margin for the Company while competing well with existing gasoline
products. The license carries a royalty burden on a sliding scale based on
the gross margin. The royalty is a percentage of gross sales at specified
margins: 3% when margins are greater than $.15 per gallon, 2% when margins are
$.10 to $.15 per gallon, and 1% at margins less than $.10 per gallon The
Company hopes to have this portion of its business operational during the 1998
fiscal year and is in the process of negotiating for the possible purchase of
a facility for the blending process. The Company issued 50,000 shares of
Preferred B and 100,000 shares of common stock with a total value of $400,000
as the acquisition price for this license. Although the stock was not issued
until April 1997, the value assigned to the stock was based on the value of
the stock in October 1996 when the seller assigned his rights to the license
to the Company.
The license was acquired after three years of efforts to obtain clear title by
the seller. Ownership has been in dispute due to claims by various entities,
including creditors, against the patent owner, who is insolvent, and against
the original licensee, a limited partnership that failed due to mismanagement
(as reported by the seller, who prevailed in obtaining the rights to transfer
the license). It is not clear that the Company has an incontestable right to
this license. However, Management has concluded that the Company should be
able to operate under this license without repercussion as long as it pays the
required royalty.
NOTE 9: REDEEMABLE STOCK
As discussed at Note 3, the Company's Preferred A shares carry a mandatory
redemption requirement. They must be redeemed at par at the end of five
years. Effectively, both preferred stock series may be converted to common
stock by the Company upon the attainment of specific circumstances as
described at Note 3. In accordance with generally accepted accounting
principles, the shares carrying the mandatory redemption feature have been
reported separately from stockholders' equity. The redemption date for these
shares is July 1, 1999.
NOTE 10: ACCUMULATED DIVIDENDS ON PREFERRED STOCK
As discussed in Note 3, NGT has issued preferred stock that contains a
provision for cumulative dividends at the rate of 9.25%. These dividends have
remained undeclared and unpaid since issuance. The amounts accumulated during
the years ended April 1997 and 1996 totaled $9,604 and $85,748, respectively.
However, WPI waived its right to receive dividends on its preferred shares as
part of the agreement to receive common shares in exchange for debt in 1996.
WPI converted its Preferred B shares into common shares during April 1997.
The waiver reduced the effective cumulative amounts to $9,604 for both 1996
and 1997. Total accumulated unpaid dividends at April 30, 1997 was $26,899.
The statement of operations presents net loss available to common shareholders
after increasing the actual net loss for the accumulated dividend arrearage.
NOTE 11: INCOME TAXES
As of April 30, 1997 and 1996, NGT had accumulated deficits of $912,694 and
$613,209. However, operating loss carry-forwards for income tax purposes vary
from these amounts due to differences in the tax treatment of various items.
These loss carry-forwards, which should provide future benefits, expire as
shown in the following table.
Amount of
Year of Operating Loss
Expiration Carry-Forward
2009 $301,283
2010 90,343
2011 222,200
2012 278,368
________
$892,194
________
________
The provision for income tax is as follows:
1997 1996
Current
Federal $ - $ -
State - -
Deferred
Federal (222,455) (132,473)
State (29,433) (16,774)
Less allowance 251,888 149,247
____________ ____________
Total $ - $ -
____________ ____________
____________ ____________
A reconciliation of income tax at the statutory rate to the Company's
effective rate at April 30, 1997 and 1996 indicates that the expected
statutory rate for each of these years is 0%. The effective tax rate is also
0%.
The following temporary differences gave rise to the deferred tax assets and
liabilities at April 30, 1997 and 1996:
1997 1996
Excess of financial accounting depletion
over tax depletion $ 68,228 $ 2,088
Amortization of goodwill on subsidiary
acquisition 1,667 -
The deferred tax asset and liabilities are comprised of the following at April
30, 1997 and 1996:
1997 1996
Assets Liabilities Assets Liabilities
Depreciation and
depletion $ 25,137 $ - $ - $ 769
Goodwill 614 - - -
Net operating losses
carried forward 226,147 - 150,017 -
Less valuation
allowance (251,898) - (149,248) -
___________ ________ __________ __________
Gross deferred tax
assets and
liabilities $ - $ - $ 769 $ 769
___________ ________ __________ __________
___________ ________ __________ __________
Net deferred tax
liability $ - $ -
________ __________
________ __________
Due to the way future utilization of tax benefits is analyzed under SFAS 109,
an allowance for the full amount of the benefits that may arise from operating
loss carry-forwards has been made and no asset has been recorded as a result
at April 30, 1997 or 1996.
NOTE 12: OPERATING LEASE
On April 1, 1997, NGT leased office space in Addison, Texas and relocated its
offices. This lease had an initial term of seventeen months beginning on that
date. The lease called for a security deposit of $3,049 and monthly lease
payments in advance. Under this lease, rent of $3,049 was included in
expenses for 1997. Minimum future rental payments total $48,790 with $36,593
and $12,197 due during the years ended April 1998 and 1999, respectively.
NOTE 13: FAIR MARKET VALUE OF FINANCIAL INSTRUMENTS
Estimated fair values of the Company's financial instruments (all of which are
held for non-trading purposes) are as follows:
1997 1996
Carrying Fair Carrying Fair
Amount Value Amount Value
Short-term bank debt $ (13,962) $ (13,962) $ (34,228) $ (34,228)
Related party short
term debt (79,067) (79,067) - -
Long-term debt (3,000,000) (2,850,154) - -
Redeemable preferred
stock (38,388) (62,878) (38,388) (56,903)
The carrying amount approximates fair value of cash and short term instruments
such as accounts receivable, accounts payable, and accrued expenses payable.
Accordingly, they have not been presented in the table above. The fair value
of short-term debt is believed to approximate its carrying amount due to its
proximate maturity. The fair value of long-term debt and redeemable preferred
stock is based on current rates at which the Company could borrow funds with
similar remaining maturities. (Redeemable preferred stock fair value includes
accumulated dividends and assumes that they will remain unpaid until maturity
in 1999.) Although the fair value of the long-term debt is lower than the
carrying value due to the difference in interest rate assumptions, the Company
cannot settle the obligation at less that current face value plus accrued
interest.
The Company owns approximately 2% of the common stock of Wagman Petroleum,
Inc. a privately held entity. There is no market for WPI's stock, and it is
impracticable to estimate the fair value of the Company's investment. The
investment is carried on the balance sheet at original cost, $14,464.
NOTE 14: CONTINGENCY
Lyric Energy, one of the Company's subsidiaries, has been contesting a suit to
recover legal fees and court costs pertaining to a previous action. This case
was tried and on April 23, 1997, the court awarded a judgment totaling
approximately $59,905, including interest. The Company was not the sole
defendant in this case, although the liability is joint and several, and the
judgment is expected to be appealed. Additionally, Lyric has obtained an
indemnification agreement against loss from Stahl Petroleum Company, another
defendant in the suit and previously a related party. Management anticipates
that this action will have no effect on the Company.
NOTE 15: SUBSEQUENT EVENTS
Subsequent to April 1997, NGT has leased 1,280 acres in Crockett County,
Texas. This lease provides for a three-year period to drill the first well
and five years to fully develop the acreage. The lease also provides for an
option to lease an additional 8,700 acres which must be exercised within 90
days of completing the first well. This combined area sits within an area
known as the Ozona Canyon Sand Gas Field, is between two significant producing
areas, and is expected to prove up significant reserves upon drilling. This
project has included geological and engineering review and research regarding
the history of the area and is considered to be sound in anticipated
activities and reasonable in regard to expected costs and results.
During May 1997, NGT arranged to acquire the remaining 50% working interest in
the Norton Prospect from its president for a note payable of $200,000 and an
option to purchase 100,000 shares of common stock at $5.00 per share.
Also, in June, the Company entered into an arrangement which required a
non-refundable deposit of $100,000 to be paid for an option to participate in
a project to rework approximately 175 oil wells in Reagan and Crockett
Counties, Texas with an initial purchase price of approximately $1,800,000.
Upon detailed review of the project and the results of work on four wells,
Management determined that the asking price was excessive and elected not to
exercise its option. As a result, the deposit was forfeited.
NATURAL GAS TECHNOLOGIES, INC. & SUBSIDIARIES
Supplementary Information Relating
To Oil and Gas Producing Activities
For the years ended April 30, 1997 and 1996
(Unaudited)
The following tables identify the Company's estimated quantities of proved
developed reserves of crude oil and natural gas related to its oil and gas
interests. These supplemental disclosures of oil and gas producing activities
are unaudited due to the nature of reserve estimates and their computation.
Amounts presented are the activity for the years ended April 30, 1997 and 1996
and balances as of April 30, 1997 and 1996. During both fiscal 1996 and 1997,
some properties were reevaluated resulting in revisions to their reserve
estimates. As is generally well known, there are risks involved in
exploration for and production of oil and gas reserves. Reserves represent
quantitative estimates of the recoverable amounts of oil and gas that exist in
the ground and of the timing and costs of producing them. There are many ways
in which reserve estimates can be over or under the actual amounts of oil and
gas that are recovered. The estimated proved oil and gas reserves included
are located entirely within the United States.
Quantities of Reserves
Oil Gas
Proved and Developed Reserves (Barrels) (MCF)
Balances, April 30, 1995 318,740 296,310
Acquisitions 11,859 -
Revisions of estimates (26,292) (68,052)
Production (6,004) (17,210)
__________ ____________
Balances, April 30, 1996 298,303 211,048
Acquisitions 957,518 -
Revisions of estimates (110,739) (82,410)
Extensions and discoveries 19,473 38,082
Production (3,833) (10,316)
__________ ____________
Balances, April 30, 1997 1,160,722 156,404
__________ ____________
__________ ____________
Reserve quantities acquired during the year are from the Norton prospect and
the East Milham Sand Unit properties acquired in March and April 1997.
Revisions to reserve estimates represent changes in previous estimates of
proved reserves resulting from new information normally obtained from
development drilling, production history, and maintenance efforts, or
resulting from changes in economic factors. Revisions to estimates during
1997 arose primarily from going back into wells that had been marginally
productive during a time when the Company was short of funds to work on them.
When rework efforts indicated that the wells had significant problems and that
relatively significant costs would be required, Management elected to shut
down these wells on properties whose leases are being held by production from
other wells. In reviewing the reserves on these properties, it was decided
that the reserves should be revised until such time as it has been determined
that it will be feasible and economical to repair these wells. Extensions and
discoveries in 1997 consist primarily of successful reworking efforts where
some wells were recompleted in different producible zones that had not been
included in reserves previously.
Capitalized Costs Relating to Oil and Gas Producing Activities
1997 1996
Unproved properties (not being amortized) $ 637,496 $ -
Proved properties (being amortized)
Evaluated proved properties 7,994,929 1,473,333
___________ ____________
Total Capitalized Costs 8,632,425 1,473,333
Accumulated Depletion (114,077) (64,926)
___________ ____________
Net Capitalized Costs $8,518,348 $ 1,408,407
___________ ____________
___________ ____________
Capitalized Costs Not Being Amortized
Property
Acquisition
Costs
During 1997 $ 637,496
No capitalized costs from prior periods are not being amortized.
Costs Incurred in Acquisition, Exploration, and Development of Properties
1997 1996
Property acquisition
Purchase of reserves in place $ 6,335,997 $ 45,248
Unevaluated properties 637,496 -
Exploration - -
Development 185,600 77,670
____________ ____________
$ 7,159,093 $ 122,918
____________ ____________
____________ ____________
Results of Operations for Oil and Gas Producing Activities
Sales of oil and gas $ 100,987 $ 133,030
Production costs (including severance
taxes) (103,646) (119,018)
Depletion (49,151) (36,993)
Income taxes - -
____________ ____________
Results of operations from producing
activities (excluding corporate
overhead) $ (51,810) $ (22,981)
____________ ____________
____________ ____________
All sales were to unaffiliated enterprises. Depletion is calculated based on
equivalent barrels of oil assuming that gas reserves and production are
converted to oil on the basis of 6 mcf per equivalent barrel of oil. During
1997 and 1996, depletion cost was $8.85 and $4.17 per equivalent barrel,
respectively. The significant difference between the two years is primarily
due to the addition of significant properties toward the end of the current
year at costs that were materially higher, on a per barrel basis, than was
recorded for previously held properties.
Standardized Measure of Discounted Future Net Cash Flows
1997 1996
Future cash inflows $ 22,335,245 $ 5,451,124
Future production and development costs (6,169,360) (743,276)
Future income taxes (2,778,125) (1,080,308)
_____________ ____________
Future net cash flows 13,387,760 3,627,540
10% annual discount for estimated timing
of cash flows (4,575,955) (919,028)
_____________ ____________
Standardized measure of discounted
future net cash flows $ 8,811,805 $ 2,708,512
_____________ ____________
_____________ ____________
Principal Sources of Changes in the Standardized Measure
of Discounted Future Net Cash Flows
1997 1996
Standardized measure - beginning of
year $ 2,708,512 $ 2,784,501
Acquisition of reserves in place 8,159,397 45,248
Sales, net of production costs (25,540) (98,251)
Extensions and discoveries 268,045 -
Changes in estimated future development
costs 2,325,764 -
Revisions of quantity estimates (1,767,609) (247,017)
Accretion of discount 351,857 365,674
Net change in income taxes (920,718) 62,173
Changes in production timing and other (2,702,584) (258,803)
Changes in sales prices 414,681 54,987
____________ ____________
Standardized measure - end of year $ 8,811,805 $ 2,708,512
____________ ____________
____________ ____________
Exhibit 3.5
ARTICLES OF INCORPORATION
OF
NATURAL GAS TECHNOLOGIES, INC.
I, the undersigned natural person of the age of 21 years or more, a
citizen of the State of Texas, acting as incorporator under the Texas Business
Corporation Act, hereby adopt the following Articles of Incorporation for such
corporation.
I.
The name of the corporation is NATURAL GAS TECHNOLOGIES, INC.
II.
The period of its duration is perpetual.
III.
The purpose of the corporation is to transact any and all lawful business
for which corporations may be incorporated.
IV.
The aggregate number of shares which the corporation shall have authority
to issue is One Million (1,000,000) shares valued at $ .01 per share. The
shares shall be designated as common stock and shall have identical rights and
privileges in every respect.
V.
The corporation will not commence business until it has received for the
issuance of its shares, consideration of the value of One Thousand Dollars
($1,000.00) consisting of money, labor done or property actually received.
VI.
The shareholders of the corporation hereby delegate to the Board of
Directors power to adopt, amend or repeal the By-Laws of the corporation.
VII.
The post office address of the initial registered office of the
corporation is 241 Pine, Suite 9 B, Abilene, Taylor County, Texas 79601 and
the name of its initial registered agent at such address is Brent Wagman.
The number of directors constituting the initial Board of Directors is
one (1) and the name and address of the person who is to serve as director
until the first annual meeting of the shareholders, or until his successor is
elected and qualified is:
Brent Wagman
241 Pine, Suite 9 B
Abilene, Texas 79601
IX.
The name and address of the incorporator is:
Mary Beth Wagman
241 Pine, Suite 9 B
Abilene, Texas 79601
IN WITNESS WHEREOF, I have hereunto set my hand this the 22nd day of
April, 1993.
/S/ MARY BETH WAGMAN
Mary Beth Wagman
STATE OF TEXAS *
COUNTY OF TAYLOR *
I, the undersigned Notary Public, do hereby certify that on this the
22nd day of April, 1993, personally appeared before me, Mary Beth Wagman, who
being by me duly sworn, declared that she is the person who signed the
foregoing document as incorporator, and that the statements therein contained
are true.
/S/ ANN WHITE
Notary Public, State of Texas
[SEAL]
Exhibit 3.6
ARTICLES OF AMENDMENT TO
ARTICLES OF INCORPORATION OF
NATURAL GAS TECHNOLOGIES, INC. BY DIRECTORS
Pursuant to the provisions of Article 4.04 of the Texas Business
Corporation Act, the undersigned directors adopt the following Articles of
Amendment to the Articles of Incorporation of Natural Gas Technologies, Inc.
ARTICLE ONE
The name of the corporation is NATURAL GAS TECHNOLOGIES, INC.
ARTICLE TWO
The following amendment to the Articles of Incorporation was adopted by
the Board of Directors of the corporation, no shares having been issued, on
June 2, 1993.
The amendment alters Article IV of the original Articles of Incorporation
to read as follows;
The aggregate number of shares which the corporation shall
have authority to issue is Ten Million (10,000,000) shares
valued at .001 per share. The shares shall be designated as
common stock and shall have identical rights and privileges
in every respect.
ARTICLE THREE
No shares have been issued by the corporation, and therefore the
amendment was adopted by the Board of Directors without a shareholder vote.
ARTICLE FOUR
The foregoing amendment was adopted by a majority of the Board of
Directors named in the Articles of Incorporation of the corporation.
Dated June 2, 1993.
NATURAL GAS TECHNOLOGIES, INC.
By: /S/ BRENT WAGMAN
Brent Wagman, President
Exhibit 3.7
ARTICLES OF SECOND AMENDMENT TO
ARTICLES OF INCORPORATION OF
NATURAL GAS TECHNOLOGIES, INC. BY DIRECTORS
Pursuant to the provisions of Article 4.04 of the Texas Business Corporation
Act, the undersigned Corporation adopts the following Articles of Amendment to
the Articles of Incorporation of Natural Gas Technologies, Inc.
ARTICLE ONE
The name of the corporation is NATURAL GAS TECHNOLOGIES, INC.
ARTICLE TWO
The following amendment to the Articles of Incorporation was adopted by
the Shareholders of the Corporation on April 21, 1994.
The Corporation hereby amends Article Two of the Articles of Amendment to
Articles of Incorporation to read as follows;
The aggregate number of shares which the corporation shall have authority
to issue is Eleven Million (11,000,000) shares. Ten Million (10,000,000)
shares shall be designated as common stock and valued at .001 per share.
Common Shares shall have identical rights and privileges in every respect.
One Million (1,000,000) shares shall be designated as Preferred Stock and
valued at $4.00 per share. Preferred Shares shall have no voting rights. All
conditions of convertability, dividend, callability, series, and any other
terms that may be applicable to the Preferred Shares shall be set by the Board
of Directors.
ARTICLE THREE
The number of shares of the Corporation outstanding at the time of such
adoption was 2,989,062 and the number of shares entitled to vote thereon was
2,989,062.
ARTICLE FOUR
The holders of 2,314,319 shares outstanding and entitled to vote on said
amendment voted affirmatively to said amendment.
ARTICLE FIVE
The amendment does not necessitate an exchange, reclassification or
cancellation of issued common shares.
ARTICLE SIX
The stated capital of the corporation will not be affected as a result of
this amendment.
NATURAL GAS TECHNOLOGIES, INC.
By: /S/ BRENT A. WAGMAN
Brent A. Wagman, President
Exhibit 3.8
AMENDED AND RESTATED BY-LAWS
OF
NATURAL GAS TECHNOLOGIES, INC.
August 1, 1996
AMENDED AND RESTATED
BY-LAWS
OF
NATURAL GAS TECHNOLOGIES, INC.
August 1, 1996
TABLE OF CONTENTS
Article Caption
I Offices
Section 1.1 Principal Office
II Shareholders
Section 2.1 Place of Meeting; Notice
Section 2.2 Annual Meeting
Section 2.3 Special Meetings
Section 2.4 Quorum
Section 2.5 Votes Required
Section 2.6 Method of Voting
Section 2.7 Proxies
Section 2.8 Presiding Officers at Meetings
Section 2.9 Failure to Hold Annual Meeting
III Directors
Section 3.1 Number and Term of Office
Section 3.2 Regular Meetings
Section 3.3 Special Meetings
Section 3.4 Place of Meeting;
Waiver of Notice
Section 3.5 Quorum
Section 3.6 Manner of Acting
Section 3.7 Action Without a Meeting
Section 3.8 Removal
Section 3.9 Vacancies
Section 3.10 Compensation, Etc.
Section 3.11 Committees
Table of Contents
(continued)
Article Caption
IV Officers
Section 4.1 Election
Section 4.2 Removal
Section 4.3 Vacancies
Section 4.4 President
Section 4.5 Vice President
Section 4.6 Treasurer
Section 4.7 Secretary
Section 4.8 Sureties and Bonds
Section 4.9 Asst. Secretary and Asst.
Treasurer
V Execution of Documents
Section 5.1 Commercial Paper
Section 5.2 Other Instruments
VI Fiscal Year
VII Certificates for Shares
Section 7.1 Execution
Section 7.2 Fixing Record Date
Section 7.3 Lost or Destroyed Certificates
Section 7.4 Transfer of Shares
VIII Shares of Stock
Section 8.1 Certificate of Stock
Section 8.2 Shares of Other Corporations
IX Dividends
X Amendment
Table of Contents
(continued)
Article Caption
XI Indemnification
Section 11.1 General
Section 11.2 Expenses Advanced
Section 11.3 Insurance
Section 11.4 Other Protection and
Indemnification
XII Conflicts of Interest
Section 12.1 General Rule Concerning
Conflicts of Interest
Section 12.2 Disclosure of Conflict of
Interest and Voting With
Respect to Such Matters
AMENDED AND RESTATED
BY-LAWS
OF
NATURAL GAS TECHNOLOGIES, INC.
* * * * * * * *
August 1, 1996
ARTICLE I - OFFICES
1.1. Principal Office. The principal office of the Corporation shall be
located at 241 Pine St., Suite 9-B, Abilene, Texas 79601 or other location as
may be designated by the Board of Directors. The Corporation may also have
offices at such other places both within and without the State of Texas as the
Board of Directors may from time to time determine or the business of the
Corporation may require.
ARTICLE II - SHAREHOLDERS
Section 2.1. Place of Meeting; Notice. All meetings of shareholders
shall be held at the principal office of the Corporation or at such other
place, either within or outside of Texas, as well as specified in the notice
of meeting. Written or printed notice stating the place, day and hour of the
meeting shall be given not less than ten nor more than sixty days before the
date of the meeting, either personally or by mail, to each shareholder of
record entitled to vote at the meeting. The notice shall designate with
reasonable specificity the business to be conducted at the meeting.
Section 2.2. Annual Meeting. An annual meeting of shareholders shall be
held at 10:00 A.M. on the 20th day of August, beginning in 1994 or if the same
shall be a Saturday, Sunday or holiday, on the next succeeding business day,
for the purpose of electing directors and for the transaction of such other
business as may come before the meeting.
Section 2.3. Special Meetings. Special meetings of shareholders, for any
purpose or purposes, may be called by the President or by the Board of
Directors or at the request of shareholders owning not less than 20% of all
the shares entitled to vote at the meetings, by notice given to the
shareholders as provided in Section 1.1 above. A request for a special
meeting shall state the purpose or purposes of the proposed meeting, and
business transacted at any special meeting of shareholders shall be limited to
the purposes stated in the notice.
Section 2.4. Quorum.
(a) Except as may otherwise be required by the Texas Business
Corporation Act (the "ACT"), the holders of one-third (1/3) of the issued and
outstanding shares, represented in person or by proxy, shall constitute a
quorum at such meeting.
(b) The shareholders present in person or by proxy at a duly organized
meeting may continue to do business until adjournment, notwithstanding the
withdrawal of enough shareholders to leave less than a quorum. Less than a
quorum may adjourn.
Section 2.5. Votes Required.
(a) On all matters other than the election of directors, the affirmative
vote of the holders of a majority of the shares present and entitled to vote
at a meeting of shareholders shall be sufficient to authorize the action by
the Corporation.
(b) Directors shall be elected by plurality vote.
Section 2.6. Method of Voting. The shareholders shall vote by written
vote on all matters including the election of directors. The person presiding
at the meeting shall designate one person, who may not be a nominee for
director if the vote be to elect directors, as inspector to tally the ballots
and report the results of the voting.
Section 2.7. Proxies. Each shareholder entitled to vote may do so by
proxy; provided, however, that the instrument authorizing such proxy shall
have been executed in writing by the shareholder himself, or by his
attorney-in-fact. No proxy shall be valid after the expiration of eleven
months from the date of its execution, unless the person executing it shall
have specified therein the length of time it is to continue in force. such
instrument shall be exhibited to the Secretary at the meeting and shall be
filed with the records of the corporation.
Section 2.8. Presiding Officers at Meetings. The President and the
Secretary of the Corporation stall act as President and Secretary of each
shareholders' meeting.
Section 2.9. Failure To Hold Annual Meeting. Failure to hold any annual
meeting shall not work a dissolution of the Corporation. If the annual
meeting is not held within any 13-month period, any court of competent
jurisdiction in the county in which the principal office of the Corporation is
located may, on the application of any shareholder, summarily order a meeting
be held.
ARTICLE III - DIRECTORS
Section 3.1. Number and Term of Office. The number of Directors of the
Corporation shall be two. Directors shall be elected at each annual meeting
of shareholders. Each Director shall hold office until the next annual
meeting of shareholders and thereafter until its successor shall have been
elected and qualified. Directors need not be residents of Texas or
shareholders of the Corporation.
Section 3.2. Regular Meetings. A regular meeting of the Board for the
purpose of electing officers and transacting such other business as may come
before the meeting shall be held without notice immediately following and at
the same place as the annual shareholders meeting. The Board may provide, by
resolution, the place, day and hour for additional regular meetings which may
be held without notice.
Section 3.3. Special Meetings. Special meeting of the Board of Directors
may be called by the President or any two directors. Written notice of any
special meeting shall be given to each director at least two days prior
thereto.
Section 3.4. Place of Meeting; Waiver of Notice. Meetings of the Board
shall be held at such place as shall be designated in the notice of meeting.
Notice of any meeting need not be given to any director who signs a waiver of
notice before or after the meeting.
Section 3.5. Quorum.
(a) A majority of the directors shall constitute a quorum for the
transaction of business at any meeting of the Board of Directors.
(b) The directors present at a duly organized meeting may continue to do
business until adjournment, notwithstanding the withdrawal of enough directors
to leave less than a quorum. Less than a quorum may adjourn.
Section 3.6. Manner of Acting. The act of a majority of the directors
present at a meeting at which a quorum is present shall be the act of the
Board of Directors.
Section 3.7. Action Without a Meeting. Any action required or permitted
to be taken pursuant to authorization voted at a meeting of the Board of
Directors may be taken without a meeting if, prior or subsequent to such
action, all of the directors consent thereto in writing. Such written
consents may be executed in counterparts, and shall be filed with the minutes
of the Corporation.
Section 3.8. Removal. Any director may be removed with just cause, said
just cause to be deemed an action made in the best interests of the
corporation and its shareholders, at any time by the affirmative vote of
shareholders holding an aggregate record of at least a majority of the
outstanding shares, and voted at a Special Meeting of the shareholders called
for that purpose. The same action may be taken by the Board of Directors,
without a majority vote of shareholders and without a special meeting of same.
Section 3.9. Vacancies. Any vacancy in the Board of Directors occurring
by reason of an increase in the number of directors, or by reason of the
death, resignation, disqualification, removal (unless a vacancy created by the
removal of a director by the shareholders shall be filled by the shareholders
at the meeting at which the removal was effected) or the inability to act by
any director, or otherwise, shall be filled for the unexpired portion of the
term by a majority vote of the remaining directors, though less than a quorum,
at any regular meeting or special meeting of the Board of Directors called for
that purpose.
Section 3.10. Compensation, Etc. No stated compensation shall be paid to
directors, as such, for their services, but by resolution of the Board of
Directors a 'reasonable fixed sum plus expenses, shall be allowed for
attendance at each regular or special meeting of the Board. Nothing herein
contained shall be construed to preclude any director from serving the
Corporation in any other capacity and receiving compensation therefore.
Section 3.11. Committees. The Board of Directors, by resolution adopted
by a majority of the entire board, may appoint from among its members an
Executive Committee and one or more other committees. Each committee shall
consist of not less than two (2) members of the Board of Directors. To the
extend provided in such resolution, each such committee shall have and may
exercise all the authority of the Board, subject to the limitations on the
permissible scope of the power of any such committees allowed by law. The
Board of Directors, by a resolution adopted by a majority of the entire board,
may fill any vacancy in any committee; abolish any committee at any time; and
remove any director from membership on any committee at any time, with or
without cause.
ARTICLE IV - OFFICERS
Section 4.1. Election. At its regular meeting following the annual
meeting of shareholders, the Board of Directors shall elect or appoint a
President, a Vice President, a Treasurer, a Secretary, a Chairman of the
Board, additional vice Presidents, one or more Assistant Secretaries and
Assistant Treasurers and such other officers or agents as it shall deem
necessary or desirable. one person may hold two or more offices, except that
the offices of the President and Secretary may not be held by the same person.
None of the officers need be Directors except the President. The Board of
Directors shall have the power to enter into contracts for the employment and
compensation of officers for such terms as the Board deems advisable. The
salaries of all officers and agents of the Corporation shall be fixed by the
Board of Directors.
Section 4.2. Removal. Any officer may be removed, either with or without
cause, and a successor elected by a majority vote of the Board of Directors at
any time.
Section 4.3. Vacancies. Any vacancy occurring among the officers,
however caused, may be filled by the Board of Directors for the unexpired
portion of the term.
Section 4.4. President.
(a) The President shall be chief executive officer of the Corporation
and, subject to the control of the Board of Directors, shall in general
supervise and control all of the business and affairs of the corporation.
Unless otherwise directed by the Board of Directors, all other officers shall
be subject to the authority and supervision of the President.
(b) The President may enter into and execute in the name of the
Corporation contracts or other instruments in the regular course of business
or contracts or other instruments not in the regular course of business which
are authorized, specifically, by the Board of Directors. He shall have the
general powers and duties of management usually vested in the office of
President of a corporation.
Section 4.5. Vice President. The Vice Presidents, in the order of their
seniority, unless otherwise determined by the Board of Directors, shall
perform such duties and have such authority as may be delegated to them from
time to time by the President or by the Board of Directors. In the absence of
the President or in the event of his death, inability, or refusal to act, the
senior Vice President, unless otherwise determined by the Board of Directors,
shall perform the duties and be vested with the authority of the President.
Section 4.6. Treasurer.
(a) The Treasurer shall have charge and custody of and be responsible
for all funds and securities of the corporation, shall keep or cause to be
kept full and accurate accounts and records of receipts, disbursements and
other transactions in books belonging to the Corporation for the Corporation.
(b) The Treasurer shall deposit all monies and other valuable effects in
the name and to the credit of the Corporation in such depositories as may be
designated by the Board of Directors.
(c) The Treasurer shall disburse the funds of-the corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render the President and the Board of Directors, at
its regular meetings, or when the President or Board of Directors so requires,
an account of all his transactions as Treasurer and of the financial condition
of the Corporation.
(d) The Treasurer shall perform such other duties and possess such other
powers as are incident to the office of Treasurer or as shall be assigned to
him by the President or by the Board of Directors.
(e) If required by the Board of Directors, the Treasurer shall give the
Corporation a bond of such type, character and amount as the Board of
Directors may require.
Section 4.7. Secretary. The Secretary shall cause notices of all
meetings to be served as prescribed in these by-laws or by statute, shall keep
or cause to be kept the minutes of all meetings of the shareholders and of the
Board of Directors, shall have charge of the corporate records and seal of the
Corporation and shall keep a register of the post office. The Secretary shall
keep in safe custody the seal of the Corporation,, and when authorized by the
Board of Directors, shall affix the same to any instrument requiring it and,
when so affixed, it shall be attested by his signature or by the signature of
an Assistant Secretary or of the Treasurer.
Section 4.8. Sureties and Bonds. In case the Board of Directors shall so
require, any officer, employee or agent of the Corporation shall execute to
the Corporation a bond in such sum, and with such surety or sureties as the
Board of Directors may direct, conditioned upon the faithful performance of
his duties to the Corporation, including responsibility for negligence and for
the accounting for all property, funds or securities of the Corporation which
may come into his hands.
Section 4.9. Asst. Secretary and Asst. Treasurer. In the absence of the
Secretary or Treasurer, an Assistant Secretary or Assistant Treasurer,
respectively shall perform the duties of the Secretary or Treasurer.
Assistant Treasurers may required to give bond as in Section 4.8 above.
ARTICLE V - EXECUTION OF DOCUMENTS
Section 5.1. Commercial Paper. All checks, notes, drafts and other
commercial paper of the corporation for amounts over $5,000 shall be signed by
the President of the Corporation and at least one other officer or other
person or persons as the Board of Directors may from time to time designate.
Section 5.2. Other Instruments. All deeds, mortgages and other
instruments shall be executed by the President of the corporation or any Vice
President, and by the Secretary, or such other person or persons as the Board
of Directors may from time to time designate.
ARTICLE VI - FISCAL YEAR
The fiscal year of the Corporation shall be May 1 to April 30, unless the
Board of Directors shall direct otherwise.
ARTICLE VII - CERTIFICATES FOR SHARES
Section 7.1. Execution. Certificates representing shares of the
corporation shall be in such form as shall be determined by the Board of
Directors and shall be executed by the President and by the Secretary, unless
the Board of Directors shall direct otherwise. The certificates shall be
consecutively numbered and shall be entered in the books of the Corporation as
they are issued. Each certificate shall state on the face thereof the
holder's name, the number and class of shares and the par value of such shares
or a statement that such shares are without par value.
Section 7.2. Fixing Record Date. For the purpose of determining the
shareholders entitled to notice of or to vote at any meeting of shareholders
or to any adjournment thereof, or to express consent to or dissent from any
proposal without any meeting or for the purpose of determining shareholders
entitled to receive payment of any dividend or allotment or any right, or in
order to make determination of shareholders for any other purposes, the Board
of Directors may fix, in advance, a date as the record date for any such
determination of shareholders. Such date shall not be more than sixty nor
less than ten days before the date of such meeting, nor more than sixty days
prior to any other action.
Section 7.3. Lost or Destroyed Certificates. The corporation may issue a
new certificate in the place of any certificate issued and alleged to have
been lost or destroyed. The shareholder must provide a written statement,
claiming the loss or destruction of his or her certificates, and the
shareholders signature must be guaranteed by a commercial bank. On production
of such evidence of loss or destruction, the Board of Directors will require
the owner of the lost or destroyed certificate, or his legal representative,
to give the Corporation a bond in such sum and with such surety to indemnify
the corporation against any claims, loss, liability or damage it may suffer on
account of the issuance of the new certificate. A new certificate may be
issued without requiring a bond when, in the judgement of the Board of
Directors, it is proper to do so.
Section 7.4. Transfer of Shares.
(a) Transfers of shares of the Corporation shall be made on the share
records of the Corporation only by the holder of record thereof, in person or
by certified mail. Upon surrender of the certificate representing shares for
cancellation, an assignment or power of attorney, properly executed, with a
signature guarantee by a commercial bank, must be attached thereto. A letter
of instruction must accompany the certificate, instructing the corporation as
to the exact transfer requirements. Said letter must also be liable for
payment of transfer taxes as the corporation or its agents may require.
(b) The Corporation shall be entitled to treat the holder of record of
any shares and the absolute owner thereof for all purposes and, accordingly,
shall not be bound to recognize any legal, equitable or other claim to such
shares on the part of any other person. Exception to this shall be as
otherwise expressly provided by State or Federal Law.
ARTICLE VIII - SHARES OF STOCK
Section 8.1. Certificate of Stock.
(a) The certificates representing shares of the Corporation shall be in
such form as shall be adopted by the Board of Directors, and shall be numbered
and registered in the order issued. They shall bear the holder's name and the
number of shares, and shall be signed by (i) the President, and (ii) the
Secretary, and shall bear the corporate seal.
(b) No certificate representing shares shall be issued until the full
amount of consideration therefore has been paid, except as otherwise permitted
by law.
(c) There will be no fractional shares. All shares that may result in
fractions will be purchased by the Corporation with a payment in cash of the
fair value of the fractions of a share as of the time when those entitled to
receive such fractions are determined, unless the holder thereof elects to
forward the addition funds necessary,, based upon the fair value as stated
above, to create a whole share.
(d) The Board of Directors may authorize the President, or other such
officers to issue shares of the Corporation, for services rendered. Said
services must be evidenced by a statement of invoice presented to the
corporation for payment.
Section 8.2. Shares of Other Corporations. Whenever the Corporation is
the holder of shares of any other corporation, any right or power of the
corporation as such shareholder (including the attendance, acting and voting
at shareholders' meetings and executions of waivers, consents, proxies or
other instruments) may be exercised on behalf of the Corporation only by the
President, or another officer as authorized by the Board of Directors, in the
event the President is unable to perform such duties. However, such
authorization of said officer shall be deemed to be only temporary, until such
time as the President may resume his duties.
ARTICLE IX - DIVIDENDS
(a) The Board of Directors may from time to time declare, and the
corporation may pay, dividends or make other distributions on its outstanding
shares in the manner and upon the terms and conditions provided by the
certificate of Incorporation and by Statute. Said dividends may be in the
form of cash, property or in the Corporation's own shares.
(b) Before payment of any dividend, there may be set aside out of any
funds of the Corporation available for dividends such sum or sums as the
Directors from time to time, in their absolute discretion, think proper as a
reserve fund for meeting contingencies or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for such other
purpose as the Directors shall think conducive to the interest of the
Corporation, and the Directors may modify or abolish any such reserve in the
manner in which it was created.
ARTICLE X - AMENDMENT
These by-laws may be amended or repealed and new bylaws may be adopted by
a majority of the votes cast at any regular or special meeting of the
shareholders, if the notice of the proposed alteration or amendment be
contained in the notice of the meeting, or by the affirmative vote of a
majority of the Board of Directors at any regular or special meeting called
for that purpose.
ARTICLE XI - INDEMNIFICATION
Section 11.1. General. The Corporation shall indemnify any Director or
officer or former Director or officer of the Corporation, or any person who
may have served at its request as a director or officer or former director or
officer of another corporation in which it owns shares of capital stock or of
which it is a creditor, against expenses actually and necessarily incurred by
him in connection with the defense of any action, suit or proceeding, whether
civil or criminal, in which he is made a party by reason of being or having
been such Director or officer, except in relation to matters as to which he
shall be adjudge in such action, suit proceeding to be liable for negligence
or misconduct in performance of duty. The Corporation shall also reimburse
any such Director or officer or former Director or officer or any such person
serving or formerly serving in the capacities set forth in the first sentence
above at the request of the Corporation for the reasonable cost of settlement
of any such action, suit or proceeding, if it shall be found by a majority of
the directors not involved in the matter in controversy, whether or not a
quorum, that it was in the best interest of the Corporation that such
settlement be made, and that such Director or officer or former Director or
officer or such person was not guilty of negligence or misconduct in
performance of duty.
Section 11.2. Expenses Advanced. The corporation may pay in advance any
expenses which may become subject to indemnification if the Board of Directors
authorizes the specific payment, and the person receiving the payment
undertakes in writing to repay unless it is ultimately determined that he is
entitled to indemnification by the corporation.
Section 11.3. Insurance. Any Director, Officer, employee, agent or other
"corporate agent" may be insured by insurance purchased and maintained by the
corporation against any expenses incurred in any proceeding and any
liabilities asserted against him, in his capacity as corporate agent, whether
or not the corporation would have the power to indemnify him against such
liability.
Section 11.4. Other Protection and Indemnification. The protection and
indemnification provided hereunder shall not be deemed exclusive of any other
rights to which such Director or officer or former Director or officer or such
person may be entitled under any agreement, insurance policy or vote of
shareholders, or otherwise.
ARTICLE XII - CONFLICTS OF INTEREST
Section 12.1. General Rule Concerning Conflicts of Interest. No contract
or other transaction between the Corporation and any other corporation shall
be impaired, affected or invalidated; nor shall any director be liable in any
way by reason of the fact that said director is interested in, or is a
director of such other corporation, provided that such facts are disclosed or
made known to the Board of Directors prior to any contracts, agreements or
transactions between the Corporation and any other corporation in which an
officer or Director has an interest.
Section 12.2. Disclosure of Conflict of Interest and Voting with Respect
to Such Matters. Any director may be a party to or have an interest in any
contract or transaction of the Corporation, provided that the fact of such
interest be disclosed or made known to the Board of Directors, and provided
that the Board of Directors shall authorize, approve or ratify such contract
or transaction by the vote (not counting the vote of any such director) of a
majority of a quorum. Such director or directors may be counted in
determining the presence of a quorum at such meeting. This Section shall not
be construed to impair or invalidate or in any way affect any contract or
other transaction which would otherwise be valid under the law (common,
statutory or otherwise) applicable thereto.
Exhibit 3.9
STATEMENT OF DESIGNATION
OF RIGHTS AND PREFERENCES
OF
NATURAL GAS TECHNOLOGIES, INC.
Pursuant to the provisions of Article 2.13 of the Texas Business
Corporation Act, the undersigned corporation adopts the following statement
regarding the designation of rights and preferences of its preferred stock.
1. The name of the corporation is Natural Gas Technologies, Inc.
2. Attached is a copy of the Board's resolution establishing and
designating the rights and preferences of the Series 1994-A and Series 1994-B
Preferred Stock.
3. The resolutions were adopted on July 1, 1994.
4. Such resolutions were duly adopted by all necessary action on the
part of the corporation.
Dated: April 29, 1997.
NATURAL GAS TECHNOLOGIES, INC.
By: /S/ BRENT A. WAGMAN
Brent A. Wagman, President
CONSENT OF DIRECTORS
OF
NATURAL GAS TECHNOLOGIES, INC.
The undersigned, being all of the directors of Natural Gas Technologies,
Inc. a Texas corporation (the "Corporation"), hereby consent to the following
action being taken without a meeting pursuant to the authorization of the
Texas Business Corporation Act:
WHEREAS, the Board of Directors is authorized by the Corporation's
Articles of Incorporation to set the conditions of the Preferred Stock.
NOW THEREFORE, be it RESOLVED, that the conditions of the 1994-A Series
Preferred Stock have the following designation of rights and preferences.
Holders of the Preferred Shares have no voting rights. They do have
preference in the event of dissolution of the Company. The 1994-A
Series pay a 9.25% per annum cumulative cash dividend, payable
quarterly and are convertible to Common Shares on a one to one basis
beginning six (6) months from the close of the Company's Regulation
A Offering. They may be converted to 1.1 shares of Common to 1
share of Preferred twelve (12) months from the date of the Close of
the Regulation A. They will be callable by the Company upon 90 days
written notice at $0.05 if the Company's Common Stock trades in a
public market and closes at or above $7.00 for 20 consecutive
trading days. A mandatory redemption will occur in June of 1999.
FURTHER RESOLVED, that the conditions of the 1994-B Series Preferred
Stock have the following designation of rights and preferences.
Holders of the Preferred Shares have no voting rights. They do have
preference in the event of dissolution of the Company. The 1994-B
Series pay a 9.25% per annum cumulative cash dividend, payable
quarterly and are convertible at the Holder's option on the
following basis: Each holder of the Preferred 1994-B Series may
convert all or part of their shares to an equal number of Common
Shares after May 1, 1996. The Preferred 1994-B Series is
subordinate to the Preferred 1994-A Series in event of dissolution
of the Company. Each share of Preferred Stock 1994-B Series
automatically converts to a share of Common Stock upon the Common
Stock of the Company trading in a public market and closing at or
above $5.00 per share for ten (10) consecutive trading days. These
shares will pay the dividend until that time. Upon conversion, any
dividends owed for that part of or any previous quarter shall be
paid within 90 days.
This Consent may be executed in counterparts, all of which taken together
shall constitute a single instrument. This Consent is executed effective as
of July 1, 1994.
________________________________
Secretary
THE UNDERSIGNED DIRECTORS
HEREBY WAIVE NOTICE OF THE
TIME, PLACE AND PURPOSE OF
THE ABOVE MEETING, AND
CONFIRM AND CONSENT TO
ALL BUSINESS TRANSACTED AT
SUCH MEETING AS EVIDENCED
BY THE ABOVE MINUTES, WHICH
ARE APPROVED.
__________________________________ Date: July 1, 1994
Brent A. Wagman, Director
__________________________________ Date: July 1, 1994
Sonja Fletcher, Director
__________________________________ Date: July 1, 1994
Ray Parker, Director
__________________________________ Date: July 1, 1994
Warren Donohue, Director
Exhibit 10.8
A.A.P.L. Form 610-1982
MODEL FORM OPERATING AGREEMENT
OPERATING AGREEMENT
DATED
Feb. 1 , 1994
OPERATOR Wagman Petroleum, Inc.
CONTRACT AREA Various leases: See Exhibit "A"
COUNTY OR PARISH OF Coke, Coleman & Runnels STATE OF Texas
COPYRIGHT 1982 ALL RIGHTS RESERVED
AMERICAN ASSOCIATION OF PETROLEUM
LANDMEN, 4100 FOSSIL CREEK BLVD.
FORT WORTH, TEXAS 76137, APPROVED FORM.
A.A.P.L. NO. 610 - 1982 REVISED
GUIDANCE IN THE PREPARATION OF THIS AGREEMENT:
1. Title Page - Fill in blanks as applicable.
2. Preamble, Page 1 - Enter name of Operator.
3. Article II - Exhibits:
(a) Indicate Exhibits to be attached.
(b) If it is desired that no reference be made to non-
discrimination, the reference to Exhibit "F" should be deleted.
4. Article III.B. - Interests of Parties in Costs and Production - Enter
royalty fraction as agreed to by parties.
5. Article IV.A. - Title Examination - Select option as agreed to by the
parties.
6. Article IV.B. - Loss of Title - If "Joint Loss" of Title is desired,
the following changes should be made:
(a) Delete Articles IV.B.1 and IV.B.2.
(b) Article IV.B.3 Delete phrase "other than those set forth in
Articles IV.B.1 and IV.B.2 above."
(c) Article VII.E. Change reference at end of the first grammatical
paragraph from "Article IV.B.2" to "Article IV.B.3."
(d) Article X. - Add as the concluding sentence - "All claims or
suits involving title to any interest subject to this agreement
shall be treated as a claim or a suit against all parties
hereto."
7. Article V - Operator - Enter name of Operator.
8. Article VI.A - Initial Well:
(a) Date of commencement of drilling.
(b) Location of well.
(c) Obligation depth.
9. Article VI.B.2.(b) - Subsequent Operations - Enter penalty percentage
as agreed to by parties.
10. Article VI.C. - Taking Production in Kind - If a Gas Balancing
Agreement is not in existence nor attached hereto as Exhibit "E", then use
Alternate Page 8.
11. Article VII.D.l. - Limitation of Expenditures - Select option as agreed
to by parties.
12. Article VII,D.3. - Limitation of Expenditures - Enter limitation of
expenditure of Operator for single project and amount above which
Operator may furnish information AFE.
13. Article IX. Internal Revenue Code Election - Delete this article in the
event the agreement is a Tax Partnership and Exhibit "G" is attached.
14. Article X. Claims and Lawsuits - Enter claim limit as agreed to by
parties.
15. Article XIII. - Term of Agreement:
(a) Select Option as agreed to by parties.
(b) If Option No. 2 is selected, enter agreed number of days in two
(2) blanks.
16. Article XIV.B Governing Law - Enter state as agreed to by parties.
17. Signature Page - Enter effective date.
TABLE OF
CONTENTS
Article
I. DEFINITIONS
II. EXHIBITS
Ill. INTERESTS OF PARTIES
A. OIL AND GAS INTERESTS
B. INTERESTS OF PARTIES IN COSTS AND PRODUCTION
C. EXCESS ROYALTIES, OVERRIDING ROYALTIES AND OTHER PAYMENTS
D. SUBSEQUENTLY CREATED INTERESTS
IV. TITLES
A. TITLE EXAMINATION
B. LOSS OF TITLE
1. Failure of Title
2. Loss by Non-Payment or Erroneous Payment of Amount Due
3. Other Losses
V. OPERATOR
A. DESIGNATION AND RESPONSIBILITIES OF OPERATOR
B. RESIGNATION OR REMOVAL OF OPERATOR AND SELECTION OF SUCCESSOR
1. Resignation or Removal of Operator
2. Selection of Successor Operator
C. EMPLOYEES
D. DRILLING CONTRACTS
VI. DRILLING AND DEVELOPMENT
A. INITIAL WELL
B. SUBSEQUENT OPERATIONS.
1. Proposed Operations
2. Operations by Less than All Parties
3. Stand-By Time
4. Sidetracking
C. TAKING PRODUCTION IN KIND
D. ACCESS TO CONTRACT AREA AND INFORMATION
E. ABANDONMENT OF WELLS
1. Abandonment of Dry Holes
2. Abandonment of Wells that have Produced
3. Abandonment of Non-Consent Operations
VII. EXPENDITURES AND LIABILITY OF PARTIES
A. LIABILITY OF PARTIES
B. LIENS AND PAYMENT DEFAULTS
C. PAYMENTS AND ACCOUNTING
D. LIMITATION OF EXPENDITURES
1. Drill or Deepen
2. Rework or Plug Back
3. Other Operations
E. RENTALS, SHUT-IN WELL PAYMENTS AND MINIMUM ROYALTIES
F. TAXES
G. INSURANCE
VIII. ACQUISITION, MAINTENANCE OR TRANSFER OF INTEREST
A. SURRENDER OF LEASE
B. RENEWAL OR EXTENSION OF LEASES
C. ACREAGE OR CASH CONTRIBUTIONS
D. MAINTENANCE OF UNIFORM INTEREST
E. WAIVER OF RIGHTS TO PARTITION
F. PREFERENTIAL RIGHT TO PURCHASE
IX. INTERNAL REVENUE CODE ELECTION
X. CLAIMS AND LAWSUITS
XI. FORCE MAJEURE
XII. NOTICES
XIII. TERM OF AGREEMENT
XIV. COMPLIANCE WITH LAWS AND REGULATIONS
A. LAWS, REGULATIONS AND ORDERS
B. GOVERNING LAW
C. REGULATORY AGENCIES
XV. OTHER PROVISIONS
XVI. MISCELLANEOUS
OPERATING AGREEMENT
THIS AGREEMENT, entered into by and between ______________________________
________________________________________________________ hereinafter
designated and referred to as "Operator", and the signatory party or parties
other than Operator, sometimes hereinafter referred to individually herein as
"Non-Operator", and collectively as "Non-Operators".
WITNESSETH:
WHEREAS, the parties to this agreement are owners of oil and gas leases
and/or oil and gas interests in the land identified in Exhibit "A", and the
parties hereto have reached an agreement to explore and develop these leases
and/or oil and gas interests for the production of oil and gas to the extent
and as hereinafter provided,
NOW, THEREFORE, it is agreed as follows:
ARTICLE 1.
DEFINITIONS
As used in this agreement, the following words and terms shall have the
meanings here ascribed to them:
A. The term "oil and gas" shall mean oil, gas, casinghead gas, gas
condensate, and all other liquid or gaseous hydrocarbons and other
marketable substances produced therewith, unless an intent to
limit the inclusiveness of this term is specifically stated.
B. The terms "oil and gas lease", "lease" and "leasehold" shall mean
the oil and gas leases covering tracts of land lying within the
Contract Area which are owned by the parties to this agreement.
C. The term "oil and gas interests" shall mean unleased fee and
mineral interests in tracts of land lying within the Contract Area
which are owned by parties to this agreement.
D. The term "Contract Area" shall mean all of the lands, oil and gas
leasehold interests and oil and gas interests intended to be
developed and operated for oil and gas purposes under this
agreement. Such lands, oil and gas leasehold interests and oil
and gas interests are described in Exhibit "A".
E. The term "drilling unit" shall mean the area fixed for the
drilling of one well by order or rule of any state or federal body
having authority. If a drilling unit is not fixed by any such
rule or order, a drilling unit shall be the drilling unit as
established by the pattern of drilling in the Contract Area or as
fixed by express agreement of the Drilling Parties.
F. The term "drillsite" shall mean the oil and gas lease or interest
on which a proposed well is to be located.
G. The terms "Drilling Party" and "Consenting Party" shall mean Party
who agrees to join in and pay its share of the cost of any operation
conducted under the provisions of this agreement.
H. The terms "Non-Drilling Party" and "Non-Consenting Party" shall
mean a party who elects not to participate in a proposed operation.
Unless the context otherwise clearly indicates, words used in the singular
include the plural, the plural includes the singular, and the neuter gender
includes the masculine and the feminine.
ARTICLE II.
EXHIBITS
The following exhibits, as indicated below and attached hereto, are
incorporated in and made a part hereof:
A. Exhibit "A", shall include the following information:
(1) Identification of lands subject to this agreement,
(2) Restrictions, if any, as to depths, formations, or
substances,
(3) Percentages or fractional interests of parties to this
agreement,
(4) Oil and gas leases and/or oil and gas interests subject to
this agreement,
(5) Addresses of parties for notice purposes.
B. Exhibit "B", Form of Lease.
C. Exhibit "C", Accounting Procedure.
D. Exhibit " D ", Insurance.
E. Exhibit "E", Gas Balancing Agreement.
F. Exhibit " F ", Non-Discrimination and Certification of Non-
Segregated Facilities.
G. Exhibit "G", Tax Partnership.
If any provision of any exhibit, except Exhibits "E" and "G", is
inconsistent with any provision contained in the body of this agreement, the
provisions in the body of this agreement shall prevail.
ARTICLE III.
INTERESTS OF PARTIES
A. Interests of Parties in Costs and Production:
Unless changed by other provisions, all costs and liabilities incurred
in operations under this agreement shall be borne and paid, and all equipment
and materials acquired in operations on the Contract Area shall be owned, by
the parties as their interests are set forth in Exhibit "A". In the same
manner, the parties shall also own all production of oil and gas from the
Contract Area subject to the payment of royalties to the extent of all
royalties which shall be borne as hereinafter set forth.
Regardless of which party has contributed the lease(s) and/or oil and
gas interest(s) hereto on which royalty is due and payable, each party
entitled to receive a share of production of oil and gas from the Contract
Area shall bear and shall pay or deliver, or cause to be paid or delivered, to
the extent of its interest in such production, the royalty amount stipulated
hereinabove and shall hold the other parties free from any liability therefor.
No party shall ever be responsible, however, on a price basis higher than the
price received by such party, to any other party's lessor or royalty owner,
and if any such other party's lessor or royalty owner should demand and
receive settlement on a higher price basis, the party contributing the
affected lease shall bear the additional royalty burden attributable to such
higher price.
Nothing contained in this Article III.B. shall be deemed an assignment
or cross-assignment of interests covered hereby.
C. Excess Royalties, Overriding Royalties and Other Payments:
Unless changed by other provisions, if the interest of any party in any
lease covered hereby is subject to any royalty, overriding royalty, production
payment or other burden on production in excess of the amount stipulated in
Article III.B., such party so burdened shall assume and alone bear all such
excess obligations and shall indemnify and hold the other parties hereto
harmless from any and all claims and demands for payment asserted by owners of
such excess burden.
D. Subsequently Created Interests:
If any party should hereafter create an overriding royalty, production
payment or other burden payable out of production attributable to its working
interest hereunder, or if such a burden existed prior to this agreement and is
not set forth in Exhibit "A", or was not disclosed in writing to all other
parties prior to the execution of this agreement by all parties, or is not a
jointly acknowledged and accepted obligation of all parties (any such interest
being hereinafter referred to as "subsequently created interest" irrespective
of the timing of its creation and the party out of whose working interest the
subsequently created interest is derived being hereinafter referred to as
("burdened party"), and:
1. If the burdened party is required under this agreement to
assign or relinquish to any other party, or parties, all or
a portion of its working interest and/or the production
attributable thereto, said other party, or parties, shall
receive said assignment and/or production free and clear of
said subsequently created interest and the burdened party
shall indemnify and save said other party, or parties,
harmless from any and all claims and demands for payment
asserted by owners of the subsequently created interest;
and,
2. If the burdened party fails to pay, when due, its share of
expenses chargeable hereunder, all provisions of Article
VII.B. shall be enforceable against the subsequently
created interest in the same manner as they are enforceable
against the working interest of the burdened party.
ARTICLE IV.
TITLES
A. Title Examination:
Title examination shall be made on the drillsite of any proposed well
prior to commencement of drilling operations or, if the Drilling Parties so
request, title examination shall be made on the leases and/or oil and gas
interests included, or planned to included, in the drilling unit around such
well. The opinion will include the ownership of the working interest,
minerals, royalty, overriding royalty and production payments under the
applicable leases. At the time a well is proposed, each party contributing
leases and/or oil and gas interests to the drillsite, or to be included in
such drilling unit, shall furnish to Operator all abstracts (including federal
lease status reports), title opinions, title papers and curative material in
its possession free of charge. All such information not in the possession of
or made available to Operator by the parties, but necessary for the
examination of the title, shall be obtained by Operator. Operator shall cause
title to be examined by attorneys on its staff or by outside attorneys.
Copies of all title opinions shall be furnished to each party hereto. The
cost incurred by Operator in this title program shall be borne as follows:
Option No. 1: Costs incurred by Operator in procuring abstracts and title
examination (including preliminary, supplemental, shut-in gas royalty opinions
and division order title opinions) shall be a part of the administrative
overhead as provided in Exhibit "A" and shall not be a direct charge, whether
performed by Operators staff attorneys or by outside attorneys.
Option No. 2: Costs incurred by Operator in procuring abstracts and fees paid
outside attorneys for title examination (including preliminary, supplemental,
shut-in gas royalty opinions and division order title opinions) shall be borne
by the Drilling Parties in the proportion that the interest of each Drilling
Party bears to the total interest of all Drilling Parties as such interests
appear in Exhibit "A". Operator shall make no charge for services rendered by
its staff attorneys or other personnel in the performance of the above
functions.
Each party shall be responsible for securing curative matter and pooling
amendments or agreements required in connection with leases or oil and gas
interests contributed by such party. Operator shall be responsible for the
preparation and recording of pooling designations or declarations, as well as
the conduct of hearings before governmental agencies for the securing of
spacing or pooling orders. This shall not prevent any party from appearing on
its own behalf at any such hearing.
No well shall be drilled on the Contract Area until after (1) the title
to the drillsite or drilling unit has been examined as above provided, and (2)
the title has been approved by the examining attorney or title has been
accepted by all of the parties who are to participate in the drilling of the
well.
1. Losses of Title: All losses incurred, shall be joint losses
and shall be borne by all parties in proportion to their interests. There
shall be no readjustment of interests in the remaining portion of the Contract
Area.
ARTICLE V.
OPERATOR
A. Designation and Responsibilities of Operator:
Wagman Petroleum, Inc. shall be the
Operator of the Contract Area, and shall conduct and direct and have full
control of all operations on the Contract Area as permitted and required by,
and within the limits of this agreement. It shall conduct all such operations
in a good and workmanlike manner, but it shall have no liability as Operator
to the other parties for losses sustained or liabilities incurred, except such
as may result from gross negligence or willful misconduct.
B. Resignation or Removal of Operator and Selection of Successor:
1. Resignation or Removal of Operator: Operator may resign at
any time by giving written notice thereof to Non-Operators. If Operator
terminates its legal existence, no longer owns an interest hereunder in the
Contract Area, or is no longer capable of serving as Operator, Operator shall
be deemed to have resigned without any action by Non-Operators, except the
selection of a successor. Operator may be removed if it fails or refuses to
carry out its duties hereunder, or becomes insolvent, bankrupt or is placed in
receivership, by the affirmative vote of two (2) or more Non-Operators owning
a majority interest based on ownership as shown on Exhibit "A" remaining after
excluding the voting interest of Operator. Such resignation or removal shall
not become effective until 7:00 o'clock A.M. on the first day of the calendar
month following the expiration of ninety (90) days after the giving of notice
of resignation by Operator or action by the Non-Operators to remove Operator,
unless a successor Operator has been selected and assumes the duties of
Operator at an earlier date. Operator, after effective date of resignation or
removal, shall be bound by the terms hereof as a Non-Operator. A change of a
corporate name or structure of Operator or transfer of Operators interest to
any single subsidiary, parent or successor corporation shall not be the basis
for removal of Operator.
2. Selection of Successor Operator: Upon the resignation or removal
of Operator, a successor Operator shall be selected by the parties. The
successor Operator shall be selected from the parties owning an interest in
the Contract Area at the time such successor Operator is selected. The
successor Operator shall be selected by the affirmative vote of two (2) or
more parties owning a majority interest based on ownership as shown on Exhibit
"A"; provided, however, if an Operator which has been removed fails to vote or
votes only to succeed itself, the successor Operator shall be selected by the
affirmative vote of two (2) or more parties owning a majority interest based
on ownership as shown on Exhibit "A" remaining after excluding the voting
interest of the Operator that was removed.
C. Employees:
The number of employees used by Operator in conducting operations
hereunder, their selection, and the hours of labor and the compensation for
services performed shall be determined by Operator, and all such employees
shall be the employees of Operator.
D. Drilling Contracts:
All wells drilled on the Contract Area shall be drilled on a competitive
contract basis at the usual rates prevailing in the area. If it so desires,
Operator may employ its own tools and equipment in the drilling of wells, but
its charges therefor shall not exceed the prevailing rates in the area and the
rate of such charges shall be agreed upon by the parties in writing before
drilling operations are commenced, and such work shall be performed by
Operator under the same terms and conditions as are customary and usual in the
area in contracts of independent contractors who are doing work of a similar
nature.
ARTICLE VI.
DRILLING AND DEVELOPMENT
A. Subsequent Operations:
1. Proposed Operations: Should any party hereto desire to drill
any well on the Contract Area other than the well provided for in Article
VI.A., or to rework, deepen or plug back a dry hole drilled at the joint
expense of all parties or a well jointly owned by all the parties and not then
producing in paying quantities, the party desiring to drill, rework, deepen or
plug back such a well shall give the other parties written notice of the
proposed operation, specifying the work to be performed, the location,
proposed depth, objective formation and the estimated cost of the operation.
The parties receiving such a notice shall have thirty (30) days after receipt
of the notice within which to notify the party wishing to do the work whether
they elect to participate in the cost of the proposed operation. If a drill-
ing rig is on location, notice of a proposal to rework, plug back or drill
deeper may be given by telephone and the response period shall be limited to
forty-eight (48) hours, exclusive of Saturday, Sunday and legal holidays.
Failure of a party receiving such notice to reply within the period above
fixed shall constitute an election by that party not to participate in the
cost of the proposed operation. Any notice or response given by telephone
shall be promptly confirmed in writing.
If all parties elect to participate in such a proposed operation,
Operator shall, within ninety (90) days after expiration of the notice period
of thirty (30) days (or as promptly as possible after the expiration of the
forty-eight (48) hour period when a drilling rig is on location, as the case
may be), actually commence the proposed operation and complete it with due
diligence at the risk and expense of all parties hereto; provided, however,
said commencement date may be extended upon written notice of same by Operator
to the other parties, for a period of up to thirty (30) additional days if, in
the sole opinion of Operator, such additional time is reasonably necessary to
obtain permits from governmental authorities, surface rights (including
rights-of-way) or appropriate drilling equipment, or to complete title ex-
amination or curative matter required for title approval or acceptance.
Notwithstanding the force majeure provisions of Article XI, if the actual
operation has not been commenced within the time provided (including any
extension thereof as specifically permitted herein) and if any party hereto
still desires to conduct said operation, written notice proposing same must be
resubmitted to the other parties in accordance with the provisions hereof as
if no prior proposal had been made.
2. Operations by Less than All Parties: If any party receiving
such notice as provided in Article VI.B.I. or VII.D.l. (Option No. 2) elects
not to participate in the proposed operation, then, in order to be entitled to
the benefits of this Article, the party or parties giving the notice and such
other parties as shall elect to participate in the operation shall, within
ninety (90) days after the expiration of the notice period of thirty (30) days
(or as promptly as possible after the expiration of the forty-eight (48) hour
period when a drilling rig is on location, as the case may be) actually
commence the proposed operation and complete it with due diligence. Operator
shall perform all work for the account of the Consenting Parties; provided,
however, if no drilling rig or other equipment is on location, and if Operator
is a Non-Consenting Party, the Consenting Parties shall either: (a) request
Operator to perform the work required by such proposed operation for the
account of the Consenting Parties, or (b) designate one (1) of the Consenting
Parties as Operator to perform such work. Consenting Parties, when conducting
operations on the Contract Area pursuant to this Article VI.B.2., shall comply
with all terms and conditions of this agreement.
If less than all parties approve any proposed operation, the proposing
party, immediately after the expiration of the applicable notice period, shall
advise the Consenting Parties of the total interest of the parties approving
such operation and its recommendation as to whether the Consenting Parties
should proceed with the operation as proposed. Each Consenting Party, within
forty-eight (48) hours (exclusive of Saturday, Sunday and legal holidays)
after receipt of such notice, shall advise the proposing party of its desire
to (a) limit participation to such party's interest as shown on Exhibit "A" or
(b) carry its proportionate part of Non-Consenting Parties' interests, and
failure to advise the proposing party shall be deemed an election under (a).
In the event a drilling rig is on location, the time permitted for such a
response shall not exceed a total of forty-eight (48) hours (exclusive of
Saturday, Sunday and legal holidays). The proposing party, at its election,
may withdraw such proposal if there is insufficient participation and shall
promptly notify all parties of such decision.
The entire cost and risk of conducting such operations shall be borne by
the Consenting Parties in the proportions they have elected to bear same under
the terms of the preceding paragraph. Consenting Parties shall keep the
leasehold estates involved in such operations free and clear of all liens and
encumbrances of every kind created by or arising from the operations of the
Consenting Parties. If such an operation results in a dry hole, the
Consenting Parties shall plug and abandon the well and restore the surface
location at their sole cost, risk and expense. If any well drilled, reworked,
deepened or plugged back under the provisions of this Article results in a
producer of oil and/or gas in paying quantities, the Consenting Parties shall
complete and equip the well to produce at their sole cost and risk, and the
well shall then be turned over to Operator and shall be operated by it at the
expense and for the account of the Consenting Parties. Upon commencement of
operations for the drilling, reworking, deepening or plugging back of any such
well by Consenting Parties in accordance with the provisions of this Article,
each Non-Consenting Party shall be deemed to have relinquished to Consenting
Parties, and the Consenting Parties shall own and be entitled to receive, in
proportion to their respective interests, all of such Non-Consenting Party's
interest in the well and share of production therefrom until the proceeds of
the sale of such share, calculated at the well, or market value thereof if
such share is not sold, (after deducting production taxes, excise taxes,
royalty, overriding royalty and other in interests not excepted by Article
III.D. payable out of or measured by the production from such well accruing
with respect to such interest until it reverts) shall equal the total of the
following:
(a) 100% of each such Non-Consenting Party's share of the cost
of any newly acquired surface equipment beyond the wellhead connections
(including, but not limited to, stock tanks, separators, treaters, pumping
equipment and piping), plus 100% of each such Non-Consenting Party's share of
the cost of operation of the well commencing with first production and
continuing until each such Nonconsenting Party's relinquished interest shall
revert to it under other provisions of this Article, it being agreed that each
Nonconsenting Party's share of such costs and equipment will be that interest
which would have been chargeable to such Non-Consenting Party had it
participated in the well from the beginning of the operations; and
(b) 400 % of that portion of the costs and expenses of
reworking, plugging back, testing and after deducting any cash contributions
received under Article VIII.C., and ____% of that portion of the cost of newly
acquired equipment in the well (to and including the wellhead connections),
which would have been chargeable to such Non-Consenting Party if it had
participated therein.
An election not to participate in the drilling or the deepening of a
well shall be deemed an election not to participate in any reworking or
plugging back operation proposed in such a well, or portion thereof, to which
the initial Non-Consent election applied that is conducted at any time prior
to full recovery by the Consenting Parties of the Non-Consenting Party's
recoupment account. Any such reworking or plugging back operation conducted
during the recoupment period shall be deemed part of the cost of operation of
said well and there shall be added to the sums to be recouped by the
Consenting Parties one hundred percent (100%) of that portion of the costs of
the reworking or plugging back operation which would have been chargeable to
such Non-Consenting Party had it participated therein. If such a reworking or
plugging back operation is proposed during such recoupment period, the
provisions of this Article VI.B. shall be applicable as between said
Consenting Parties in said well.
During the period of time Consenting Parties are entitled to receive
Non-Consenting Party's share of production, or the proceeds therefrom,
Consenting Parties shall be responsible for the payment of all production,
severance, excise, gathering and other taxes, and all royalty, overriding
royalty and other burdens applicable to Non-Consenting Party's share of
production not excepted by Article III.D.
In the case of any reworking, plugging back or deeper drilling operation,
the Consenting Parties shall be permitted to use, free of cost, all casing,
tubing and other equipment in the well, but the ownership of all such
equipment shall remain unchanged; and upon abandonment of a well after such
reworking, plugging back or deeper drilling, the Consenting Parties shall
account for all such equipment to the owners thereof, with each party
receiving its proportionate part in kind or in value, less cost of salvage.
Within sixty (60) days after the completion of any operation under this
Article, the party conducting the operations for the Consenting Parties shall
furnish each Non-Consenting Party with an inventory of the equipment in and
connected to the well, and an itemized statement of the cost of drilling,
deepening, plugging back, testing, completing, and equipping the well for
production; or, at its option, the operating party, in lieu of an itemized
statement of such costs of operation, may submit a detailed statement of
monthly billings. Each month thereafter, during the time the Consenting
Parties are being reimbursed as provided above, the party conducting the
operations for the Consenting Parties shall furnish the Non-Consenting Parties
with an itemized statement of all costs and liabilities incurred in the
operation of the well, together with a statement of the quantity of oil and
gas produced from it and the amount of proceeds realized from the sale of the
well's working interest production during the preceding month. In determining
the quantity of oil and gas produced during any month, Consenting Parties
shall use industry accepted methods such as, but not limited to, metering 41
periodic well tests. Any amount realized from the sale or other disposition
of equipment newly acquired in connection with any such operation which would
have been owned by a Non Consenting Party had it participated therein shall be
credited against the total unreturned costs of the work done and of the
equipment purchased in determining when the interest of such Non-Consenting
Party shall reverts to it as above provided; and if there is a credit balance,
it shall be paid to such Non-Consenting Party.
If and when the Consenting Parties recover from a Non-Consenting Party's
relinquished interest the amounts provided for above, the relinquished
interests of such Non-Consenting Party shall automatically revert to it, and,
from and after such reversion, such Nonconsenting Party shall own the same
interest in such well, the material and equipment in or pertaining thereto,
and the production therefrom as such Non-Consenting Party would have been
entitled to had it participated in the drilling, reworking, deepening or
plugging back of said well. Thereafter, such Non-Consenting Party shall be
charged with and shall pay its proportionate part of the further costs of the
operation of said well in accordance with the terms of this agreement and the
Accounting Procedure attached hereto.
Notwithstanding the provisions of this Article VI.B.2., it is agreed
that without the mutual consent of all parties, no wells shall be completed in
or produced from a source of supply from which a well located elsewhere on the
Contract Area is producing, unless such well conforms to the then-existing
well spacing pattern for such source of supply.
The provisions of this Article shall have no application whatsoever to
the drilling of the initial well described in Article VI.A. except (a) as to
Article VII.D.l. (Option No. 2), if selected, or (b) as to the reworking,
deepening and plugging back of such initial well after it has been drilled to
the depth specified in Article VIA. if it shall thereafter prove to be a dry
hole or, if initially completed for production, ceases to produce in paying
quantities.
3. Stand-By Time: When a well which has been drilled or
deepened has reached its authorized depth and all tests have been completed, a
d the results thereof furnished to the parties, stand-by costs incurred
pending response to a party's notice proposing a reworking, deepening,
plugging back or completing operation in such a well shall be charged and
borne as part of the drilling or deepening operation just completed. Stand-by
costs subsequent to all parties responding, or expiration of the response time
permitted, whichever first occurs, and prior to agreement as to the
participating interests of all Consenting Parties pursuant to the terms of the
second grammatical paragraph of Article VI.B.2, shall be charged to and borne
as part of the proposed operation, but if the proposal is subsequently
withdrawn because of insufficient participation, such stand-by costs shall be
allocated between the Consenting Parties in the proportion each Consenting
Party's interest as shown on Exhibit "A" bears to the total interest as shown
on Exhibit "A" of all Consenting Parties.
4. Sidetracking: Except as hereinafter provided, those
provisions of this agreement applicable to a "deepening" operation shall also
be applicable to any proposal to directionally control and intentionally
deviate a well from vertical so as to change the bottom hole location (herein
called "sidetracking"), unless done to straighten the hole or to drill around
junk in the hole or because of other mechanical difficulties. Any party
having the right to participate in a proposed sidetracking operation that does
not own an interest in the affected well bore at the time of the notice shall,
upon electing to participate, tender to the well bore owners its proportionate
share (equal to its interest in the sidetracking operation) of the value of
that portion of the existing well bore to be utilized as follows:
(a) If the proposal is for sidetracking an existing dry hole,
reimbursement shall be on the basis of the actual costs incurred in the
initial drilling of the well down to the depth at which the sidetracking
operation is initiated.
If the proposal is for sidetracking a well which has previously
produced, reimbursement shall be on the basis of the well's salvable materials
and equipment down to the depth at which the sidetracking operation is
initiated, determined in accordance with the provisions of Exhibit "C", less
the estimated cost of salvaging and the estimated cost of plugging and
abandoning.
In the event that notice for a sidetracking operation is given while the
drilling rig to be utilized is on location, the response period shall be
limited to forty-eight (48) hours, provided, however, any party may request
and receive up to eight (8) additional days after expiration of the
forty-eight (48) hours within which to respond by paying for all stand-by time
incurred during such extended response period. If more than one party elects
to take such additional time to respond to the notice, standby costs shall be
allocated between the parties taking additional time to respond on a day-to-
day basis in the proportion each electing party's interest as shown on Exhibit
"A" bears to the total interest as shown on Exhibit "A" of all the electing
parties. In other instances the response period to a proposal for
sidetracking shall be limited to thirty (30) days.
C. Taking Production In Kind:
Each party shall take in kind or separately dispose of its proportionate
share of all oil and gas produced from the Contract Area, exclusive of
production which may be used in development and producing operations and in
preparing and treating oil and gas for marketing purposes and production
unavoidably lost. Any extra expenditure incurred in the taking in kind or
separate disposition by any party of its proportionate share of the production
shall be borne by such party. Any party taking its share of production in be
required to pay for only its proportionate share of such part of Operators
surface facilities which it uses.
Each party shall execute such division orders and contracts as may be
necessary for the sale of its interest in production from the Contract Area,
and, except as provided in Article VII.B., shall be entitled to receive
payment directly from the purchaser thereof for its share of all production,
In the event any party shall fail to make the arrangements necessary to
take in kind or separately dispose of its proportionate share of the oil
produced from the Contract Area, Operator shall have the right, subject to the
revocation at will by the party owning it, but not the obligation, to purchase
such oil or sell it to others at any time and from time to time, for the
account of the non taking party at the best price obtainable in the area for
such production. Any such purchase or sale by Operator shall be subject
always to the right of the owner of the production to exercise at any time its
right to take in kind, or separately dispose of, its share of all oil not
previously delivered to a purchaser. Any purchase or sale by Operator of any
other party's share of oil shall be only for such reasonable periods of time
as are consistent with the minimum needs of the industry under the particular
circumstances, but in no event for a period in excess of one (1) year.
In the event one or more parties' separate disposition of its share of
the gas causes split-stream deliveries to separate pipelines and/or deliveries
which on a day-to-day basis for any reason are not exactly equal to a party's
respective proportionate share of total gas sales to be allocated to it, the
balancing or accounting between the respective accounts of the parties shall
be in accordance with any gas balancing agreement between the parties hereto,
whether such an agreement is attached as Exhibit "E", or is a separate
agreement.
D. Access to Contract Area and Information:
Each consenting party shall have access to the Contract Area at all
reasonable times, at its sole cost and risk to inspect or observe operations,
and shall have access at reasonable times to information pertaining to the
development or operation thereof, including Operators books and records
relating thereto. Operator, upon request, shall furnish each of the other
parties with copies of all forms or reports filed with governmental agencies,
daily drilling reports, well logs, tank tables, daily gauge and run tickets
and reports of stock on hand at the first of each month, and shall make
available samples of any cores or cuttings taken from any well drilled on the
Contract Area. The cost of gathering and furnishing information to Non-
Operator, other than that specified above, shall be charged to the Non-
Operator that re quests the information.
E. Abandonment of Wells:
1. Abandonment of Dry Holes: Except for any well drilled or
deepened pursuant to Article VI.B.2., any well which has been drilled or
deepened under the terms of this agreement and is proposed to be completed as
a dry hole shall not be plugged and abandoned withoutthe consent of all
parties. Should Operator, after diligent effort, be unable to contact any
party, or should any party fail to reply within forty-eight (48) hours
(exclusive of Saturday, Sunday and legal holidays) after receipt of notice of
the proposal to plug and abandon such well, such party shall be deemed to have
consented to the proposed abandonment. All such wells shall be plugged and
abandoned in accordance with applicable regulations and at the cost, risk and
expense of the parties who participated in the cost of drilling or deepening
such well. Any party who objects to plugging and abandoning such well shall
have the right to take over the well and conduct further operations in search
of oil and/or gas subject to the provisions of Article VI.B.
2. Abandonment of Wells that have Produced: Except for any well
in which a Non-Consent operation has been conducted hereunder for which the
Consenting Parties have not been fully reimbursed as herein provided, any well
which has been completed as a producer shall not be plugged and abandoned
without the consent of all parties. If all parties consent to such
abandonment, the well shall be plugged and abandoned in accordance with
applicable regulations and at the cost, risk and expense of all the parties
hereto. If, within thirty (30) days after receipt of notice of the proposed
abandonment of any well, all parties do not agree to the abandonment of such
well, those wishing to continue its operation from the intervals) of the
formations) then open to production shall tender to each of the abandon
parties its proportionate share of the value of the well's salvable material
and equipment, determined in accordance with the provisions of Exhibit "C",
less the estimated cost of salvaging and the estimated cost of plugging and
abandoning. Each abandoning party shall assign the non-abandoning parties,
without warranty, express or implied, as to title or as to quantity, or
fitness for use of the equipment and material, all of its interest in the well
and production therefrom and related equipment, together with its interest in
the leasehold estate as to, but only as to, the interval or intervals of the
formation or formations then open to production. If the interest of the
abandoning party is or includes an oil and gas interest, such party shall
execute and deliver to the non-abandoning party or parties an oil and gas
lease, limited to the interval or intervals of the formation or formations
then open to production, for a term of one (1) year and so long thereafter as
oil and/or gas is produced from the interval or intervals of the formation or
formations covered thereby, who have a present working interest in such
well(s).
"B". The assignments or leases so limited shall encompass the "drilling unit"
upon which the well is located. The payments by, and the assignments or
leases to, the assignees shall be in a ratio based upon the relationship of
their respective percentage of participation in the Contract Area to the
aggregate of the percentages of participation in the Contract Area of all
assignees. There shall be no readjustment of interests in the remaining
portion of the Contract Area.
Thereafter, abandoning parties shall have no further responsibility,
liability, or interest in the operation of or production from the well in the
interval or intervals then open other than the royalties retained in any lease
made under the terms of this Article. Upon request, Operator shall continue
to operate the assigned well for the account of the non-abandoning parties at
the rates and charges contemplated by this agreement, plus any additional cost
and charges which may arise as the result of the separate ownership of the
assigned well. Upon proposed abandonment of the producing interval(s)
assigned or leased, the assignor or lessor shall then have the option to
repurchase its prior interest in the well (using the same valuation formula)
and participate in further operations therein subject to the provisions
hereof.
3. Abandonment of Non-Consent Operations: The provisions of
Article VI.E.I. or VI.E.2. above shall be applicable as between Consenting
Parties in the event of the proposed abandonment of any well excepted from
said Articles; provided, however, no well shall be permanently plugged and
abandoned unless and until all parties having the right to conduct further
operations therein have been notified of the proposed abandonment and afforded
the opportunity to elect to take over the well in accordance with the
provisions of this Article VI.E.
ARTICLE VII.
EXPENDITURES AND LIABILITY OF PARTIES
A. Liability of Parties:
The liability of the parties shall be several, not joint or collective.
Each party shall be responsible only for its obligations, and shall be liable
only for its proportionate share of the costs of developing and operating the
Contract Area. Accordingly, the liens granted among the parties in Article
VII.B. are given to secure only the debts of each severally. It is not the
intention of the parties to create, nor shall this agreement be construed as
creating, a mining or other partnership or joint venture or agency
relationship co ventures or principals.
B. Liens and Payment Defaults:
Each Non-Operator grants to Operator a lien upon its oil and gas rights
in the Contract Area, and a security interest in its share of oil and/or gas
when extracted and its interest in all equipment, to secure payment of its
share of expense, together with interest thereon at the rate provided in
Exhibit "C". To the extent that Operator has a security interest under the
Uniform Commercial Code of the state, Operator shall be entitled to exercise
the rights and remedies of a secured party under the Code. The bringing of a
suit and the obtaining of judgment by Operator for the secured indebtedness
shall not be deemed an election of remedies or otherwise affect the lien
rights or security interest as security for the payment thereof. In addition,
upon default by any Non-Operator in the payment of its share of expense,
Operator shall have the right, without prejudice to other rights or remedies,
to collect from the purchaser the proceeds from the sale of such Non-Operators
share of oil and/or gas until the amount owed by such Non-Operator, plus
interest, has been paid. Each purchaser shall be entitled to rely upon
Operators written statement concerning the amount of any default. Operator
grants a like lien and security interest to the Non-Operators to secure
payment of Operators proportionate share of expense.
If any party fails or is unable to pay its share of expense within sixty
(60) days after rendition of a statement therefor by Operator, the non-
defaulting parties, including Operator, shall, upon request by Operator, pay
the unpaid amount in the proportion that the interest of each such party bears
to the interest of all such parties. Each party so paying its share of the
unpaid amount shall, to obtain reimbursement thereof, be subrogated to the
security rights described in the foregoing paragraph.
C. Payments and Accounting:
Except as herein otherwise specifically provided, Operator shall
promptly pay and discharge expenses incurred in the development and operation
of the Contract Area pursuant to this agreement and shall charge each of the
parties hereto with their respective proportionate shares upon the expense
basis provided in Exhibit "C". Operator shall keep an accurate record of the
joint account hereunder, showing expenses incurred and charges and credits
made and received.
Operator, at its election, shall have the right from time to time to
demand and receive from the other parties payment in advance of their
respective shares of the estimated amount of the expense to be incurred in
operations hereunder during the next succeeding month, which right may be
exercised only by submission to each such party of an itemized statement of
such estimated expense, together with an invoice for its share thereof. Each
such statement and invoice for the payment in advance of estimated expense
shall be submitted on or before the 20th day of the next preceding month.
Each party shall pay to Operator its proportionate share of such estimate
within fifteen (15) days after such estimate and invoice is received. If any
party fails to pay its share of said estimate within said time, the amount due
shall bear interest as provided in Exhibit "C" until paid. Proper adjustment
shall be made monthly between advances and actual expense to the end that each
party shall bear and pay its proportionate share of actual expenses incurred,
and no more.
D. Limitation of Expenditures:
1. Drill or Deepen: Without the consent of all parties, no well
shall be drilled or deepened, except any well eepened pursuant to the
provisions of Article VI.B.2. of this agreement. Consent to the drilling or
deepening shall include:
Option No. 1: All necessary expenditures for the drilling or deepening,
testing, completing and equipping of the well, including necessary tankage
and/or surface facilities.
Option No. 2: All necessary expenditures for the drilling or deepening
and testing of the well. When such well has reached its authorized depth, and
all tests have been completed, and the results thereof furnished to the
parties, Operator shall give immediate notice to the Non-Operators who have
the right to participate in the completion costs. The parties receiving such
notice shall have forty-eight (48) hours which to elect to participate in the
setting of casing and the completion attempt. Such election, when made, shall
include consent to all necessary expenditures for the completing and equipping
of such well, including necessary tankage and/or surface facilities. Failure
of any party receiving such notice to reply within the period above fixed
shall constitute an election by that party not to participate in the cost of
the completion attempt. If one or more, but less than all of the parties,
elect to set pipe and to attempt a completion, the provisions of Article
VI.B.2. hereof (the phrase "reworking, deepening or plugging back " as
contained in Article VI.B. 2. shall be deemed to include " completing ") shall
apply to the operations thereafter conducted by less than all parties.
2. Rework or Plug Back: Without the consent of all parties, no well
shall be reworked or plugged back except a well reworked or plugged back
pursuant to the provisions of Article VI.B.2. of this agreement. Consent to
the reworking or plugging back of a well shall include all necessary
expenditures in conducting such operations and completing and equipping of
said well, including necessary tankage and/or surface facilities.
3. Other Operations: Without the consent of all parties, Operator
shall not undertake any single project reasonably estimated to require an
expenditure in excess of Fifteen Thousand Dollars ($15,000) except in
connection with a well, the drilling, reworking, deepening, completing, re-
completing, or plugging back of which has been previously authorized by or
pursuant to this agreement; provided, however, that, in case of explosion,
fire, flood or other sudden emergency, whether of the same or different
nature, Operator may take such steps and incur such expenses as in its opinion
are required to deal with the emergency to safeguard life and property but
Operator, as promptly as possible, shall report the emergency to the other
parties, If Operator prepares an authority for expenditure (AFE) for its own
use, Operator shall furnish any Non Operator so requesting an information copy
thereof for any single project costing in excess of Fifteen Thousand Dollars
($15,000.00) but less than the amount first set forth above in this paragraph.
E.Rentals, Shut-in Well Payments and Minimum Royalties:
Rentals, shut-in well payments and minimum royalties which may be
required under the terms of any lease shall be paid by the party or parties
who subjected such lease to this agreement at its or their expense. In the
event two or more parties own and have contributed interests in the same lease
to this agreement, such parties may designate one of such parties to make said
payments for and on behalf of all such parties. Any party may request, and
shall be entitled to receive, proper evidence of all such payments. In the
event of failure to make proper payment of any rental, shut in well payment or
minimum royalty through mistake or oversight where such payment is required to
continue the lease in force, any loss which results from such non-payment
shall be borne in accordance with the provisions of Article 3.
Operator shall notify Non-Operator of the anticipated completion of a
shut in gas well, or the shutting in or return to production of a producing
gas well, at least five (5) days (excluding Saturday, Sunday and legal
holidays), or at the earliest opportunity permitted by circumstances, prior to
taking such action, but assumes no liability for failure to do so. In the
event of failure by Operator to so notify Non-Operator, the loss of any lease
contributed hereto by Non-Operator for failure to make timely payments of any
shut-in well payment shall be borne jointly by the parties hereto under the
provisions of Article IV.B.3.
F. Taxes: Beginning with the first calendar year after the effective
date hereof, Operator shall render for ad valorem taxation all property
subject to this agreement which by law should be rendered for such taxes, and
it shall pay all such taxes assessed thereon before they become delinquent.
Prior to the rendition date, each Non-Operator shall furnish Operator
information as to burdens (to include, but not be limited to, royalties,
overriding royalties and production payments) on leases and oil and gas
interests contributed by such Non- Operator. If the assessed valuation of any
leasehold estate is reduced by reason of its being subject to outstanding
excess royalties, over riding royalties or production payments, the reduction
in ad valorem taxes resulting therefrom shall inure to the benefit of the
owner or owners of such leasehold estate, and Operator shall adjust the charge
to such owner or owners so as to reflect the benefit of such reduction, If the
ad valorem taxes are based in whole or in part upon separate valuations of
each party's working interest, then notwithstanding anything to the contrary
herein, charges to the joint account shall be made and paid by the parties
hereto in accordance with the tax value generated by each party's working
interest. Operator shall bill the other parties for their proportionate
shares of all tax payments in the manner provided in Exhibit "C".
If Operator considers any tax assessment improper, Operator may, at its
discretion, protest within the time and manner prescribed by law, and
prosecute the protest to a final determination, unless all parties agree to
abandon the protest prior to final determination. During the pendency of
administrative or judicial proceedings, Operator may elect to pay, under
protest, all such taxes and any interest and penalty. When any such protested
assessment shall have been finally determined, Operator shall pay the tax for
the joint account, together with any interest and penalty accrued, and the
total cost shall then be assessed against the parties, and be paid by them, as
provided in Exhibit "C".
Each party shall pay or cause to be paid all production, severance,
exercise, gathering and other taxes imposed upon or@with respect to the
production or handling of such party's share of oil and/or gas produced under
the terms of this agreement.
G. Insurance: At all times while operations are conducted hereunder,
Operator shall comply with the workmen's compensation law of the state where
the operations are being conducted; provided, however, that Operator may be a
self-insurer for liability under said compensation laws in which event the
only charge that shall be made to the joint account shall be as provided in
Exhibit "C". Operator shall also carry or provide insurance for the benefit
of the joint account of the parties as outlined in Exhibit "D", attached to
and made a part hereof. Operator shall require all contractors engaged in
work on or for the Contract Area to comply with the workmen's compensation law
of the state where the operations are being conducted and to maintain such
other insurance as Operator may require.
In the event automobile public liability insurance is specified in said
Exhibit "D", or subsequently receives the approval of the parties, no direct
charge shall be made by Operator for premiums paid for such insurance for
Operators automotive equipment.
ARTICLE VIII.
ACQUISITION, MAINTENANCE OR TRANSFER OF INTEREST
A. Surrender of Leases:
The leases covered by this agreement, insofar as they embrace acreage in
the Contract Area, shall not be surrendered in whole or in part unless all
parties consent thereto.
However, should any party desire to surrender its interest in any lease
or in any portion thereof, and the other parties do not agree or consent
thereto, the party desiring to surrender shall assign, without express or
implied warranty of title, all of its interest in such lease, or portion
thereof, and any well, material and equipment which may be located thereon and
any rights in production thereafter secured, to the parties not consenting to
such surrender. If the interest of the assigning party is or includes an oil
and gas interest, the assigning party shall execute and deliver to the party
or parties not consenting to such surrender an oil and gas lease covering such
oil and gas interest for a term of one (1) year and so long thereafter as oil
and/or gas is produced from the land covered thereby. Upon such assignment or
lease, the assigning party shall be relieved from all obligations thereafter
accruing, but not theretofore accrued, with respect to the interest assigned
or leased and the operation of any well attributable thereto, and the
assigning party shall have no further interest in the assigned or leased
premises and its equipment and production other than the royalties retained in
any lease made under the terms of this Article. The party assignee or lessee
shall pay to the party assignor or lessor the reasonable salvage value of the
latter's interest in any wells and equipment attributable to the assigned or
leased acreage. The value of all material shall be determined in accordance
with the provisions of Exhibit "C", less the estimated cost of salvaging and
the estimated cost of plugging and abandoning. If the assignment or lease is
in favor of more than one party, the interest shall be shared by such parties
in the proportions that the interest of each bears to the total interest of
all such parties.
Any assignment, lease or surrender made under this provision shall not
reduce or change the assignor's, lessor's or surrendering party's interest as
it was immediately before the assignment, lease or surrender in the balance of
the Contract Area; and the acreage assigned, leased or surrendered, and
subsequent operations thereon, shall not thereafter be subject to the terms
and provisions of this agreement.
B. Renewal or Extension of Leases: If any party secures a renewal of
any oil and gas lease subject to this agreement, all other parties shall be
notified promptly, and shall have the right for a period of thirty (30) days
following receipt of such notice in which to elect to participate in the
ownership of the renewal lease, insofar as such lease affects lands within the
Contract Area, by paying to the party who acquired it their several proper
proportionate shares of the acquisition cost allocated to that part of such
lease within the Contract Area, which shall be in proportion to the interests
held at that time by the parties in the Contract Area.
If some, but less than all, of the parties elect to participate in the
purchase of a renewal lease, it shall be owned by the parties who elect to
participate therein, in a ratio based upon the relationship of their
respective percentage of participation in the Contract Area to the aggregate
of the percentages of participation in the Contract Area of all parties
participating in the purchase of such renewal lease. Any renewal lease in
which less than all parties elect to participate shall not be subject to this
agreement.
Each party who participates in the purchase of a renewal lease shall be
given an assignment of its proportionate interest therein by the acquiring
party.
The provisions of this Article shall apply to renewal leases whether
they are for the entire interest covered by the expiring lease or cover only a
portion of its area or an interest therein. Any renewal lease taken before
the expiration of its predecessor lease, or taken or contracted for within six
(6) months after the expiration of the existing lease shall be subject to this
provision; but any lease take or contracted for more than six (6) months after
the expiration of an existing lease shall not be deemed a renewal lease and
shall not be subject to the provisions of this agreement.
The provisions in this Article shall also be applicable to extensions of
oil and gas leases.
C. Acreage or Cash Contributions: While this agreement is in force,
if any party contracts or receives for a contribution of cash towards the
drilling of well or any other operation on the Contract Area, such
contribution shall be paid to the party who conducted the drilling or other
operation and shall be applied by it against the cost of such drilling or
other operation. If the contribution be in the form of acreage, the party to
whom the contribution is made shall promptly tender an assignment of the
acreage, without warranty of title, to the Drilling Parties in the proportions
said Drilling Parties shared the cost of drilling the well. Such acreage
shall become a separate Contract Area and, to the extent possible, be governed
by provisions identical to this agreement. Each party shall promptly notify
all other parties of any acreage or cash contributions it may obtain in
support of any well or any other operation on the Contract Area. The above
provisions shall also be applicable to optional rights to earn acreage outside
the Contract Area which are in support of a well drilled inside the Contract
Area.
If any party contracts for any consideration relating to disposition of
such party's share of substances produced hereunder, such consideration shall
not be deemed a contribution as contemplated in this Article VIII.C.
D. Maintenance of Uniform Interest: For the purpose of maintaining
uniformity of ownership in the oil and gas leasehold interests covered by this
agreement, no party shall sell, encumber, transfer or make other disposition
of its interest in the leases embraced within the Contract Area and in wells,
equipment and production unless such disposition covers either:
1. the entire interest of the party in all leases and equipment and
production; or
2. an equal undivided interest in all leases and equipment and
production in the Contract Area.
Every such sale, encumbrance, transfer or other disposition made by any
party shall be made expressly subject to this agreement and shall be made
without prejudice to the right of the other parties.
If, at any time the interest of any party is divided among and owned by
four or more co-owners, Operator, at its discretion, may require such co-
owners to appoint a single trustee or agent with full authority to receive
notices, approve expenditures, receive billings for and approve and pay such
party's share of the joint expenses, and to deal generally with, and with
power to bind, the co-owners of such party's interest within the scope of the
operations embraced in this agreement; however, all such co-owners shall have
the right to enter into and execute all contracts or agreements for the
disposition of their respective shares of the oil and gas produced from the
Contract Area and they shall have the right to receive, separately, payment of
the sale proceeds thereof.
E. Waiver of Rights to Partition: If permitted by the laws of the
state or states in which the property covered hereby is located, each party
hereto owning an undivided interest in the Contract Area waives any and all
rights it may have to partition and have set aside to it in severalty its
undivided interest therein.
ARTICLE IX.
INTERNAL REVENUE CODE ELECTION
This agreement is not intended to create, and shall not be construed to
create, a relationship of partnership or an association for profit between or
among the parties hereto. Notwithstanding any provision herein that the
rights and liabilities hereunder are several and not joint or collective, or
that this agreement and operations hereunder shall not constitute a
partnership, if, for federal income tax purposes, this agreement and the
operations hereunder are regarded as a partnership, each party hereby affected
elects to be excluded from the application of all of the provisions of
Subchapter "K", Chapter 1, Subtitle "A", of the Internal Revenue Code of 1954,
as permitted and authorized by Section 761 of the Code and the regulations
promulgated thereunder. Operator is authorized and directed to execute on
behalf of each party hereby affected such evidence of this election as may be
required by the Secretary of the Treasury of the United States or the Federal
Internal Revenue Service, including specifically, but not by way of
limitation, all of the returns, statements, and the data required by Federal
Regulations 1.761. Should there be any requirement that each party hereby
affected give further evidence of this election, each such party shall execute
such documents and furnish such other evidence as may be required by the
Federal Internal Revenue Service or as may be necessary to evidence this
election. No such party shall give any notices or take any other action
inconsistent with the election made hereby. If any present or future income
tax laws of the state or states in which the Contract Area is located or any
future income tax laws of the United States contain provisions similar to
those in Subchapter "K", Chapter 1, Subtitle "A", of the Internal Revenue Code
of 1954, under which an election similar to that provided by Section 761 of
the Code is permitted, each party hereby affected shall make such election as
may be permitted or required by such laws. In making the foregoing election,
each such party states that the income derived by such party from operations
hereunder can be adequately determined without the computation of partnership
taxable income.
ARTICLE X.
CLAIMS AND LAWSUITS
Operator may settle any single uninsured third party damage claim or
suit arising from operations hereunder if the expenditure does not exceed
Fifteen Thousand Dollars ($15,000. 00) and if the payment is in complete
settlement of such claim or suit. If the amount required for settlement
exceeds the above amount, the parties hereto shall assume and take over the
further handling of the claim or suit, unless such authority is delegated to
Operator. AR costs and expenses of handling, settling, or otherwise
discharging such claim or suit shall be at the joint expense of the parties
participating in the operation from which the claim or suit arises. If a
claim is made against any party or if any party is sued on account of any
matter arising from operations hereunder over which such individual has no
control because of the rights given Operator by this agreement, such party
shall immediately notify all other parties, and the claim or suit shall be
treated as any other claim or suit involving operations hereunder. All claims
or suits involving title to any interest subject to this agreement shall be
treated as a claim against all parties hereto.
ARTICLE XI.
FORCE MAJEURE
If any party is rendered unable, wholly or in part, by force majeure to
carry out its obligations under this agreement, other than the obligation to
make money payments, that party shall give to all other parties prompt written
notice of the force majeure with reasonably full particulars concerning it;
thereupon, the obligations of the party giving the notice, so far as they are
affected by the force majeure, shall be suspended during, but no longer than,
the continuance of the force majeure. The affected party shall use all
reasonable diligence to remove the force majeure situation as quickly as
practicable.
The requirement that any force majeure shall be remedied with all
reasonable dispatch shall not require the settlement of strikes, lockouts. or
other labor difficulty by the party involved, contrary to its wishes; how all
such difficulties shall be handled shall be entirely within the discretion of
the party concerned.
The term "Force Majeure", as here employed, shall mean an act of God,
strike, lockout, or other industrial disturbance, act of the public enemy,
war, blockade, public riot, lightning, fire, storm, flood, explosion,
governmental action, governmental delay, restraint or inaction, unavailability
of equipment, and any other cause, whether of the kind specifically enumerated
above or otherwise, which is not reasonably within the control of the party
claiming suspension.
ARTICLE XII.
NOTICES
All notices authorized or required between the parties and required by
any of the provisions of this agreement, unless otherwise specifically
provided, shall be given in writing by mail or telegram, postage or charges
prepaid, or by telex or telecopier and addressed to the parties to whom the
notice is given at the addresses listed on Exhibit "A". The originating
notice given under any provision hereof shall be deemed given only when
received by the party to whom such notice is directed, and the time for such
party to give any notice in response thereto shall run from the date the
originating notice is received. The second or any responsive notice shall be
deemed given when deposited in the mail or with the telegraph company, with
postage or charges prepaid, or sent by telex or telecopier. Each party shall
have the right to change its address at any time, and from time to time, by
giving written notice thereof to all other parties.
ARTICLE XIII.
TERM OF AGREEMENT
This agreement shall remain in full force and effect as to the oil and
gas leases and/or oil and gas interests subject hereto for the period of time
selected below; provided, however, no party hereto shall ever be construed as
having any right, title or interest in or to any lease or oil and gas interest
contributed by any other party beyond the term of this agreement.
Option No. 1: So long as any of the oil and gas leases subject to this
agreement remain or are continued in force as to any part of the Contract
Area, whether by production, extension, renewal or otherwise.
Option No. 2: In the event the well described in Article VI.A., or any
subsequent well drilled under any provision of this agreement, results in
production of oil and/or gas in paying quantities, this agreement shall
continue in force so long as any such well or wells produce, or are capable of
production, and for an additional period of days from cessation of all
production; provided, however, if, prior to the expiration of such additional
period, one or more of the parties hereto are engaged in drilling, reworking,
deepening, plugging back, testing or attempting to complete a well or wells
hereunder, this agreement shall continue in force until such operations have
been completed and if production results therefrom, this agreement shall
continue in force as provided herein. In the event the well described in
Article VI.A., or any subsequent well drilled hereunder, results in a dry
hole, and no other well is producing, or capable of producing oil and/or gas
from the Contract Area, this agreement shall terminate unless drilling,
deepening, plugging back or reworking operations are commenced within days
from the date of abandonment of said well.
It is agreed, however, that the termination of this agreement shall not
relieve any party hereto from any liability which has accrued or attached
prior to the date of such termination.
ARTICLE XIV
COMPLIANCE WITH LAWS AND REGULATIONS
A. Laws, Regulations and Orders:
This agreement shall be subject to the conservation laws of the
state in which the Contract Area is located, to the valid rules, regulations,
and orders of any duly constituted regulatory body of said state, and to all
other applicable federal, state; and to all other applicable federal, state,
and local laws, ordinances, rules, regulations, and orders.
B. Governing Laws:
This agreement and all matters pertaining hereto, including, but not
limited to, matters of performance, non-performance, breach, remedies,
procedures, rights, duties and interpretation or construction, shall be
governed and determined by the law of the state in which the Contract Area is
located. If the Contract Area is in two or more states, the law of the state
of Texas shall govern.
C. Regulatory Agencies:
Nothing herein contained shall grant, or be construed to grant, Operator
the right or authority to waive or release any rights, privileges, or
obligations which Non-Operator may have under federal or state laws or under
rules, regulations or orders promulgated under such laws in reference to oil,
gas and mineral operations, including the location, operation, or production
of wells, on tracts offsetting or adjacent to the Contract Area.
With respect ot operations hereunder, Non-Operators agree to release
Operator from any and all losses, damages, injuries, claims and causes of
action arising out of, incident to or resulting directly or indirectly from
Operators interpretation or application of rules, rulings, regulations or
orders of the Department of Energy or predecessor or successor agencies to the
extent such interpretation or application was made in good faith. Each Non-
Operator further agrees to reimburse Operator for any amounts applicable to
such Non-Operators share of production that Operator may be required to
refund, rebate or pay as a result of such incorrect interpretation or
application.
Non-Operators authorize Operator to prepare and submit such documents as
may be required to be submitted to the purchaser of any crude oil sold
hereunder or to any other person or entity pursuant to the requirements of the
"Crude Oil Windfall Profit Tax Act of 1980", as same may be amended from time
to time ("Act"), and any valid regulations or rules which may be issued by the
Treasury Department from time to time pursuant to said Act. Each party hereto
agrees to furnish any and all certifications or other information which is
required to be furnished by said Act in a timely manner and in sufficient
detail to permit compliance with said Act.
ARTICLE XVI.
MISCELLANEOUS
This agreement shall be binding upon and shall inure to the benefit of
the parties hereto and to their respective heirs, devises, legal
representatives, successors and assigns.
This instrument may be executed in any number of counterparts, each of
which shall be considered an original for all purposes.
IN WITNESS WHEREOF, this agreement shall be effective as of ____ day of
February , 19 94 .
OPERATOR
____________________________________ ____________________________________
____________________________________ ____________________________________
NON OPERATORS
____________________________________ ____________________________________
____________________________________ ____________________________________
15 -
EXHIBIT "C"
Attached to and made a part of that certain Joint Operating Agreement
dated 1993, by and among Natural Gas Technologies, Inc., as Non-Operator and
Wagman Petroleum, Inc., as Operator.
ACCOUNTING PROCEDURE
JOINT OPERATIONS
I. GENERAL PROVISIONS
1. Definitions
"Joint Property" shall mean the real and personal property subject to
the agreement to which this Accounting Procedure is attached,
"Joint Operations" shall mean all operations necessary or proper for
the development, operation, protection and maintenance of the Joint
Property.
"Joint Account" shall mean the account showing the charges paid and
credits received in the conduct of the Joint Operations and which are
to be shared by the Parties.
"Operator" shall mean the party designated to conduct the Joint
Operations.
"Non-Operators" shall mean the parties to this agreement other than
the Operator.
"Parties" shall mean Operator and Non-Operators.
"First Level Supervisors" shall mean those employees whose primary
function in Joint Operations is the direct supervision of other
employees and/or contract labor directly employed on the Joint
Property in a field operating capacity.
"Technical Employees" shall mean those employees having special and
specific engineering, geological or other professional skills, and
whose primary function in Joint Operations is the handling of
specific operating conditions and problems for the benefit of the
Joint Property.
"Personal Expenses" shall mean travel and other reasonable
reimbursable expenses of Operators employees.
"Material" shall mean personal property, equipment or supplies
acquired or held for use on the Joint Property.
"Controllable Material" shall mean Material which at the tirie is so
classified in the Material Classification Manual as most recently
recommended by the Council of Petroleum Accountants Societies of
North America.
2. Statement and Billings
Operator shall bill Non-Operators on or before the last day of each
month for their proportionate share of the Joint Account for the
preceding month, Such bills will be accompanied by statements which
identify the authority for expenditure, lease or facility, and all
charges and credits, summarized by appropriate classifications of
investment and expense except that items of Controllable Material and
unusual charges and credits shall be separately identified and fully
described in detail.
3. Advances and Payments by Non-Operators
Unless otherwise provided for in the agreement, the Operator may
require the Non-Operators to advance their, share of estimated cash
outlay for the succeeding month's operation. Operator shall adjust
each monthly billing to reflect advances received from the
Non-Operators.
Each Non-Operator shall pay its proportion of all bills within
fifteen) days after receipt. If payment is not made within such
time, the unpaid balance shall bear, interest monthly at the rate of
twelve percent (12%) per annum or the maximum contract rate permitted
by the applicable usury laws in the state in which the Joint Property
is located, whichever is the lesser, plus attorney's fees, court
costs, and other costs in connection with the collection of unpaid
amounts.
4. Adjustments
Payment of any such bills shall not prejudice the right of any Non-
Operator to protest or question the correctness thereof; provided,
however, all bills and statements rendered to Non-Operators by
Operator during any calendar year shall conclusively be presumed to
be true and correct after twenty-four (24) months following the end
of any such calendar year, unless within the said twenty-four (24)
month period a Non-Operator takes written exception thereto and makes
claim on Operator for adjustment. No adjustment favorable to
Operator shall be made unless it is made within the same prescribed
period. The provisions of this paragraph shall not prevent
adjustments resulting from a physical inventory of Controllable
Material as provided for in Section V.
5. Audits
A. Non-Operator, upon notice in writing to Operator and all other
Non-Operators, shall have the right to audit Operators accounts and
records relating to the Joint Account for any calendar year within
the twenty-four (24) month period following the end of such calendar
year; provided, however, the making of an audit shall not extend the
time for the taking of written exception to and the adjustments of
accounts as provided for in Paragraph 4 of this Section I. Where
there are two or more Non-Operators, the Non-Operators shall make
every reasonable effort to conduct joint or simultaneous audits in a
manner which will result in a minimum of inconvenience to the
Operators. Operator shall bear no portion of the Non-Operators audit
cost incurred under this paragraph unless agreed to by the Operator.
6. Approval by Non-Operators
Where an approval or other agreement of the Parties or Non-Operators
is expressly required under other sections of this Accounting
Procedure and if the agreement to which this Accounting Procedure is
attached contains no contrary provisions in regard thereto, Operator
shall notify all Non-Operators of the Operators proposal, and the
agreement or approval of a majority in interest of the Non-Operators
shall be controlling on all Non-Operators.
II. DIRECT CHARGES
Operator shall charge the Joint Account with the following items:
1. Rentals and Royalties
Lease rentals and royalties paid by Operator for the Joint Operations.
2. Labor
A. (1) Salaries and wages of Operators field employees directly
employed on the Joint Property in the conduct of Joint
Operations.
(2) Salaries of First Level Supervisors in the field.
(3) Salaries and wages of Technical Employees directly
employed on the Joint Property if such charges are
excluded from the Overhead rates.
B. Operators cost of holiday, vacation, sickness and
disability benefits and other customary allowances paid
to employees whose salaries and wages are chargeable to
the Joint Account under Paragraph 2A of this Section
II. Such costs under this Paragraph 2B may be charged
on a "when and as paid basis" or by "percentage
assessment" on the amount of salaries and wages
chargeable to the Joint Account under Paragraph 2A of
this Section II. If percentage assessment is used, the
rate shall be based on the Operators cost experience.
C. Expenditures or contributions made pursuant to
assessments imposed by governmental authority which are
applicable to Operators costs chargeable to the Joint
Account under Paragraphs 2A and 2B of this Section II.
D. Personal Expenses of those employees whose salaries and
wages are chargeable to the Joint Account under
Paragraph 2A of this Section II.
3. Employee Benefits
Operators current costs of established plans for employees' group life
insurance, hospitalization, pension, retirement, stock purchase,
thrift, bonus, and other benefit plans of a like nature, applicable to
Operators labor cost chargeable to the Joint Account under Paragraphs
2A and 2B of ties Section 11 shall be Operators actual cost not to
exceed twenty percent (20%).
4. Material
Material purchased or furnished by Operator for use on the Joint
Property as provided under Section IV. Only such Material shall be
purchased for or transferred to the Joint Property as may be required
for immediate use and is reasonably practical and consistent with
efficient and economical operations. The accumulation of Surplus
stocks shall be avoided.
5. Transportation
Transportation of employees and Material necessary for the Joint
Operations but subject to the following limitations:
A. If Material is moved to the Joint Property from the Operators
warehouse or other properties, no charge shall be made to the Joint
Account for a distance greater than the distance from the nearest
reliable supply store, recognized barge terminal, or railway
receiving point where like Material is normally available, unless
agreed to by the Parties.
B. If surplus Material is moved to Operators warehouse or, other
storage point, no charge shall be made to the Joint Account for a
distance greater than the distance to the nearest reliable supply
store, recognized barge terminal, or, railway receiving point
unless agreed to by the Parties. No charge shall be made to the
Joint account for, moving Material to other properties belonging to
Operator, unless agreed to by the Parties.
C. In the application of Subparagraphs A and B above, there shall be
no equalization of actual gross trucking cost of $200 or less
excluding accessorial charges.
6. Services
The cost of contract services, equipment and utilities provided by
outside sources, except services excluded by Paragraph 9 of Section II
and Paragraph 1. ii of Section III. The cost of professional
consultant services and contract services of technical personnel
directly engaged on the Joint Property if such charges are excluded
from the Overhead rates. The cost of professional consultant services
or contract services of technical personnel not directly engaged on the
Joint Account unless previously agreed to by the Parties.
7. Equipment and Facilities Furnished by Operator
A. Operator shall charge the Joint Account for use of Operator owned
equipment and facilities at rates commensurate with costs of
ownership and operation. Such rates shall include costs of
maintenance, repairs, other operating expense, insurance, taxes,
depreciation, and interest on investment not to exceed eight
percent (8%) per annum. Such rates shall not exceed average
commercial rates currently prevailing in the immediate area of the
Joint Property.
B. In lieu of charges in Paragraph 7A above, Operator may elect to use
average commercial rates prevailing in the immediate area of the
Joint Property less 20%. For automotive equipment, Operator may
elect to use rates published by the Petroleum Motor Transport
Association.
8. Damages and Losses to Joint Property
All costs or expenses necessary for the repair or replacement of Joint
Property made necessary because of damages or losses incurred by fire,
flood, storm, theft, accident, or, other cause, except those resulting
from Operators gross negligence or willful misconduct. Operator shall
furnish Non-Operator written notice of damages or losses incurred as \
soon as practicable after a report thereof has been received by
Operator.
9. Legal Expense
Expense of handling, investigating and settling litigation or claims,
discharging of liens, payment of judgments and amounts paid for
settlement of claims incurred in or resulting from operations under the
agreement or necessary to protect or recover, the Joint Property,
except that no charge for services of Operators legal staff or fees or
expense of outside attorneys shall be made unless previously agreed to
by the Parties. All other legal expense is considered to be covered by
the overleap provisions of Section III unless otherwise agreed to by
the Parties, except as provided in Section I, Paragraph 3.
10. Taxes
All taxes of every kind and nature assessed or levied upon or in
connection with the Joint Property, the Operator thereof, or the
production therefrom, and which taxes have been paid by the Operator
for the benefit of the Parties.
11. Insurance
Net premiums paid for insurance required to be carried for the Joint
Operations for the protection of the Parties. In the event Joint
operations are conducted in a state in which Operator may act as self-
insurer for Workmen's Compensation and/or Employers Liability under the
respective state's laws, Operator may, at its election, include the
risk under its self-insurance program and in that event, Operator shall
include a charge at Operators cost not to exceed manual rates.
12. Other Expenditures
Any other expenditure not covered or dealt with in the foregoing
provisions of this Section II, or in Section III, and which is incurred
by the Operator in the necessary and proper conduct of the Joint
Operations.
III. OVERHEAD
1. Overhead - Drilling and Producing Operations
i. As compensation for administrative, supervision, office services
and warehousing costs, Operator shall charge drilling and producing
operations on either:
Fixed Rate Basis, Paragraph 1A, or
Percentage Basis, Paragraph IB.
Unless otherwise agreed to by the Parties, such charge shall be in,
lieu of costs and expenses of all offices and salaries or wages plus
applicable burdens and expenses of all personnel, except those directly
chargeable under Paragraph 2A, Section II. The cost and expense of
services from outside sources in connection with matters of taxation,
traffic, accounting or matters before or involving governmental
agencies shall be considered as included in the Overhead rates provided
for. in the above selected Paragraph of this Section III unless such
cost and expense are agreed to by the Parties as a direct charge to the
Joint Account.
ii. The salaries, wages and Personal Expenses of Technical Employees
and/or the cost of professional consultant services and contract
services of technical personnel directly employed on the Joint
Property shall not ( ) be covered by the Overhead rates.
A. Overhead - Fixed Rate Basis
(1) Operator shall charge the Joint Account at the following
rates per well per month:
Drilling Well Rate $ 5,000.00
Producing Well Rate $ 300.00
(2) Application of Overhead - Fixed Rate Basis shall be as
follows:
(a) Drilling Well Rate
[1] Charges for on-shore drilling wells shall begin on the
date the well is spudded and terminate on the date the
drilling or completion rig is released, whichever is
later, except that no charge shall be made during
suspension of drilling operations for fifteen (15) or
more consecutive days.
[2] Charges for offshore drilling wells shall begin on the
date when drilling or completion equipment arrives on
location and terminate on the date the drilling or
completion equipment moves off location or rig is
released, whichever occurs first, except that no
charge shall be made during suspension of drilling
operations for fifteen (15) or more consecutive days.
[3] Charges for wells undergoing any type of workover or
re-completion for a period of five (5) consecutive
days or more shall be made at the drilling well rate.
Such charges shall be applied for the period from date
workover operations, with rig, commence through date
of rig release, except that no charge shall be made
during suspension of operations for fifteen (15) or
more consecutive days.
(b) Producing Well Rates
[1] An active well either produced or injected into for
any portion of the month shall be considered as a
one-well charge for the entire month.
[2] Each active completion in a multi-completed well in
which production is not commingled down hole shall be
considered as a one-well charge providing each
completion is considered a separate well by the
governing regulatory authority.
[3] An inactive gas well shut in because of over
production or failure of purchaser to take the
production shall be considered as a one-well charge
providing the gas well is directly connected to a
permanent sales outlet.
[4] A one-well charge may be made for the month in which
plugging and abandonment operations are completed on
any well.
[5] All other inactive wells (including but not limited to
inactive wells covered by unit allowable, lease
allowable, transferred allowable, etc.) shall not
qualify for an overhead charge.
(3) The well rates shall be adjusted as of the first clay of
April each year following tile effective date of the
agreement to which this Accounting Procedure is attached.
The adjustment shall be computed by multiplying the rate
currently in use by the percentage increase or decrease in
the average weekly earnings of Crude Petroleum and Gas
Production Workers for the last calendar year compared to
the calendar year preceding as shown by the index of
average weekly earnings of Crude Petroleum and Gas Fields
Production Workers as published by the United States
Department of Labor, Bureau of Labor Statistics, or the
equivalent Canadian index as published by Statistics
Canada, as applicable. The adjusted rates shall be
the rates currently in use, plus or minus the computed
adjustment.
B. Overhead - Percentage Basis
(1) Operator shall charge the Joint Account at the
following rates:
(a) Development
_________ Percent (%) of the cost of Development
of the Joint Property exclusive of costs provided
under Paragraph 9 of Section II and all salvage
credits.
(b) Operating
_________ Percent (%) of the cost of Operating
the Joint Property exclusive of costs provided
under Paragraphs 1 and 9 of Section II, all
salvage credits, the value of injected substances
purchased for secondary recovery and all taxes
and assessments which are levied, assessed and
paid upon the mineral interest in and to the
Joint Property.
(2) Application of Overhead - Percentage Basis shall be as
follows:
For the purpose of determining charges on a percentage
basis under, Paragraph 1B of this Section III, development
shall include all costs in connection with drilling,
redrilling, deepening or any remedial operations on any or
all wells involving the use of drilling crew and equipment;
also, preliminary expenditures necessary in preparation for
drilling and expenditures incurred in abandoning when the
well is not completed as a producer, and original cost of
construction or installation of fixed assets, the expansion
of fixed assets and any other project clearly discernible
as a fixed asset, except Major Construction as defined in
Paragraph 2 of this Section III. All other costs shall be
considered as Operating.
2. Overhead - Major Construction
To compensate Operator for Overhead costs incurred in the construction
and installation of fixed assets, the expansion of fixed assets, and
any other project clearly discernible as a fixed asset required for the
development and operation of the Joint Property, Operator shall either
negotiate a rate prior to the beginning of construction, or shall
charge the Joint Account for Overhead based on the following rates for
any Major Construction project in excess of $ 100,000.00:
A. 3 % of total costs if such costs are more than $50,000.00
but less than $100,000.00 ; plus
B. 2 % of total costs in excess of $100,000.00 but less
than $1,000,000; plus
C. 1 % of total costs in excess of $1,000,000.
Total cost shall mean the gross cost of any one project. For, the
purpose of this paragraph, the component parts of a single project
shall not be treated separately and the cost of drilling and workover
wells shall be excluded.
3. Amendment of Rates
The Overhead rates provided for in this Section III may be amended from
time to only by mutual agreement between the Parties hereto if, in
practice, the rates are found to be insufficient or excessive.
IV. PRICING OF JOINT ACCOUNT MATERIAL PURCHASES, TRANSFERS AND DISPOSITIONS
Operator is responsible for Joint Account Material and shall make proper and
timely charges and credits for all material movements affecting the Joint
Property. Operator shall provide all Material for use on the Joint Property;
however, at Operators option, such Material may be supplied by the
Non-Operator. Operator shall make timely disposition of idle and/or surplus
Material, such disposal being made either through sale to Operator or
Non-Operator, division in kind, or sale to outsiders, Operator may purchase,
but shall be under no obligation to purchase, interest of Non-Operators in
surplus condition A or B Material. The disposal of surplus Controllable
Material not purchased by the Operator shall be agreed to by the Parties.
1. Purchases
Material purchased shall be charged at the price paid by Operator after
deduction of all discounts received. In case of Material found to be
defective or returned to vender for any other reason, credit shall be
passed to the Joint Account when adjustment has been received by the
Operator.
2. Transfers and Dispositions
Material furnished to the Joint Property and Material transferred from
the Joint Property or disposed of by the Operator, unless otherwise
agreed to by the Parties, shall be priced on the following bases
exclusive of cash discounts:
A. New Material (Condition A)
(1) Tubular goods, except line pipe, shall be priced at the
current new price in effect on date of movement on a
maximum carload or barge load weight basis, regardless
of quantity transferred, equalized to the lowest
published price f.o.b. railway receiving point or
recognized barge terminal nearest the Joint Property
where such Material is normally available.
(2) Line Pipe
(a) Movement of less than 30,000 pounds shall be priced
at the current new price, in effect at date of
movement, as listed by a reliable supply store
nearest the Joint Property where such Material is
normally available.
(b) Movement of 30,000 pounds or more shall be priced
under provisions of tubular goods pricing in
Paragraph 2A (1) of this Section IV.
(3) Other Material shall be priced at the current new price,
in effect at (late of movement, as listed by a reliable
supply store or f.o.b. railway receiving point nearest
the Joint Property where such Material is normally
available.
B. Good Used Material (Condition B)
Material in sound and serviceable condition and suitable for
reuse without reconditioning:
(1) Material moved to the Joint Property
(a) At seventy-five percent (75%) of current new price,
as determined by Paragraph 2A of this Section IV.
(2) Material moved from the Joint Property
(a) At seventy-five percent (75%) of current new price,
as determined by Paragraph 2A of this Section IV,
if Material was originally charged to the Joint
Account as new Material, or
(b) at sixty-five percent (65%,) of current new price,
as determined by Paragraph 2A of this Section IV,
if Material was originally charged to the Joint
Account as good used Material at seventy-five
percent (75%) of current new price.
The cost of reconditioning, if any, shall be absorbed by the
transferring property.
C. Other Used Material (Condition C and D)
(1) Condition C
Material which is not in sound and serviceable condition
and not suitable for its original function until after
reconditioning shall be priced at fifty percent (50%) of
current new price as determined by Paragraph 2A of this
Section IV. The cost of reconditioning shall be charged to
the receiving property, provided Condition C value plus
cost of reconditioning does not exceed Condition B value.
(2) Condition D
All other Material, including junk, shall be priced at a
value commensurate with its use or at prevailing prices.
Material no longer suitable for its original purpose but
usable for some other purpose, shall be priced oil a basis
comparable with that of items normally used or such other
purpose. Operator relay dispose of Condition D Material
under procedures normally utilized by the Operator without
prior approval of Non-Operators.
D. Obsolete Material
Material which is serviceable and usable for its original
function but condition and/or value of such Material is not
equivalent to that which would justify a price as provided above
may be specially priced as agreed to by the Parties. Such price
should result in the Joint Account being charged with the value
of the service rendered by such Material.
E. Pricing Conditions
(1) Loading and unloading costs may be charged to the Joint
Account at the rate of fifteen cents (15 cents) per hundred
weight on all tubular goods movements, in lieu of loading
and unloading costs sustained, when actual hauling cost of
such tubular goods are equalized under provisions of
Paragraph 5 of Section II.
(2) Material involving erection costs shall be charged at
applicable percentage of the current knocked-down price of
new Material.
3. Premium Prices
Whenever Material is not readily obtainable at published or listed
prices because of national emergencies, strikes or other unusual
causes over which tile Operator has no control, the Operator may
charge the Joint Account for the required Material at the Operators
actual cost incurred in providing such Material, in making it suitable
for use, and in moving it to the Joint Property; provided notice in
writing is furnished to Non-Operators of the proposed charge prior to
billing Non-Operators such Material. Each Non-Operator shall have the
right, by so electing and notifying Operator within ten days after
receiving notice from Operator, to furnish in kind all or part of his
share of such Material suitable for use and acceptable to Operator.
4. Warranty of Material Furnished by Operator
Operator does not warrant the Material furnished. In case of
defective Material, credit shall not be passed to the Joint Account
until adjustment has been received by Operator from the manufacturers
or their agents.
V. INVENTORIES
The Operator shall maintain detailed records of Controllable Material.
1. Periodic Inventories, Notice and Representation
At reasonable intervals, Inventories shall be taken by Operator of the
Joint Account Controllable Material. Written notice of intention to
take inventory shall be given by Operator at least thirty (30) days
before any inventory is to begin so that Non-Operator may be
represented when any inventory is taken. Failure of Non-Operators to
be represented at an inventory shall bind Non-Operators to accept the
inventory taken by Operator.
2. Reconciliation and Adjustment of Inventories
Reconciliation of a physical inventory with the Joint Account shall be
made, and a list of overages and shortages shall be furnished to the
Non-Operators within six months following the taking of the inventory.
Inventory adjustments shall be made by Operator with the Joint Account
for overages and shortages, but Operator shall be held accountable only
for shortages due to lack of reasonable diligence.
3. Special Inventories
Special Inventories may be taken whenever there is any sale or change
of interest in the Joint Property. It shall be the duty of the party
selling to notify all other Parties as quickly as possible after the
transfer of interest takes place. In such cases, both the seller and
the purchaser shall be governed by such inventory.
4. Expense of Conducting Periodic Inventories
The expense of conducting periodic Inventories shall not be changed to
the Joint Account unless agreed to by the Parties.
Exhibit A
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Property to be Net Revenue Working Interest
Purchased: Percent(%): Percent(%):
Aldridge 80.0000 100.0000
Chadbourne Ranch 30:L-1 2.3000 2.8750
Chadbourne Ranch 431-IH 5.5290 6.8550
Chadbourne Ranch 431-2 13.9700 17.4200
Herring 19.5000 24.0000
Herring 122-1 10.0000 12.5000
Herring 122-2H 16.1480 20.1840
McDonald 44.7150 44.7150
Neal 2&3 18.9740 23.7680
John Rhone 9.8320 13.7643
Rhone 119-IH 15.6000 19.5000
Rhone A 19.5000 25.0000
Rhone A-3H 14.0897 17.8345
Sealy Smith 55 9.3500 11.6875
Stowe #1 32.7700 40.9700
Wagman #1 22.4263 28.7550
Proven Undeveloped Net Revenue Working Interest
Acreage: Percent(%): Percent(%):
Chadbourne Ranch 431 20.0000 25.0000
Stowe 80.0000 100.0000
Higgins 80.0000 100.0000
EXHIBIT "B"
MEMORANDUM OF JOINT OPERATING AGREEMENT
This Memorandum hereby provides evidence and notice of a Joint Operating
Agreement, dated February 1, 1994, effective February 1, 1994, by and between
Natural Gas Technologies, Inc. as Non-Operators, and Wagman Petroleum, Inc.
as Operator.
Said Joint Operating Agreement was entered into for the purpose of exploring
and developing oil and gas leases and/or interests for the production of oil
and gas from the lands subject to the Agreement as follows:
SEE EXHIBIT "A"
Attached to said Agreement and incorporated therein is a Financial Protection
Agreement, which is attached hereto and incorporated herein by reference.
A copy of this Agreement is on deposit at:
WAGMAN PETROLEUM, INC.
241 Pine Street, #9B
Abilene, TX 79601
(915) 677-3366
and may be reviewed by requesting same from:
Brent A. Wagman
This Memorandum is dated February 1, 1994.
OPERATOR: Non-Operator:
Wagman Petroleum, Inc. Natural Gas Technologies, Inc.
BY: _______________________________ ____________________________________
Brent A. Wagman Vice President
President
ACKNOWLEDGEMENTS
STATE OF TEXAS }
}
COUNTY OF TAYLOR}
This instrument was acknowledged before me this ____ day of ____________,
1994, by Brent A. Wagman, President of Wagman Petroleum, Inc. , a Florida
Corporation.
____________________________________
Notary Public in and for
The State of Texas
My Commission Expires Printed Name of Notary:
____________________________________ ____________________________________
STATE OF TEXAS }
}
COUNTY OF TAYLOR}
This instrument was acknowledged before me this ____ day of ____________,
1994, by __________, Vice President of Natural Gas Technologies, Inc., a Texas
Corporation.
____________________________________
Notary Public in and for
The State of Texas
My Commission Expires Printed Name of Notary:
____________________________________ ____________________________________
EXHIBIT "D"
INSURANCE
Attached to and made a part of that certain Joint Operating
Agreement dated __________ by and between Wagman Petroleum, Inc.
as OPERATOR and Natural Gas Technologies, Inc. as Non-Operator.
Operator shall maintain for the benefit of all parties hereto, insurance of
the types and in the maximum amounts as described in (a) through (e) below.
Such insurance may carry reasonable deductibles. Premiums for such insurance
shall be charged to the Joint Account.
Non-Operating working interest owners shall be named as additional insureds on
the liability insurance policies, but only with respect to the performance of
all work hereunder and only to the limits shown in this agreement.
All such insurance shall be carried by an acceptable insurer or insurers;
shall be maintained in full force and effect during the term of this
agreement; and shall not be canceled, altered or amended without thirty (30)
days prior written notice. If so required, Operator agrees to have its
insurance carrier furnish certificates of insurance evidencing such insurance
coverages.
Non-Operating working interest owners agree that the limits and coverage
carried by Operator are adequate. Such coverages and limits may change or be
unavailable from time to time and Operator does not guarantee their
continuance but will use its best efforts to provide such coverages and limits
at reasonable costs.
Operator and Non-Operating working interest owners agree to mutually waive
Subrogation in favor of each other on all insurance carried by each party
and/or to obtain such waiver from the insurance carrier if so required by the
insurance contract. If such a waiver is not obtained, the party failing to do
so shall indemnify the other party for any claim by an insurance carrier
arising out of subrogation.
a. Worker's Compensation insurance in full compliance with all applicable
state and federal laws and regulations.
b. Employer's Liability insurance in the limits of $500,000 per accident
covering injury or death to any employee who may be outside the scope of the
Worker's Compensation scope of the Worker's Compensation statute of the state
in which the work is performed. (Non-Operating working interest owners shall
be named as additional insureds only if permitted by the insurer).
c. Commercial (or Comprehensive) General Liability insurance with combined
single limits per occurrence of $500,000 (and general aggregate if applicable
of $1,000,000) for Bodily Injury and Property Damage, including Property
Damage by Blowout and Cratering. Completed Operations, and Broad Form
Contractual Liability as respects any contract into which the Operator may
enter under the terms of this Agreement.
d. Automobile Liability insurance covering owned, non-owned and hired
automotive equipment with limits for Bodily Injury and Property Damage of
$100,000.
e. Operator shall carry Operators Extra Expense("OEE") insurance covering the
costs of controlling a blowout, the expenses involved in redrilling or
restoring the well, certain other related costs and seepage and Pollution
Liability. (These are descriptive terms only and exact coverage can be found
only in the policy.) The limits for this insurance vary according to depth
and location of well. Non-Operating working interest owners not wishing to
be covered under this policy must notify Operator prior to spud date and
provide evidence of satisfactory OEE Insurance on a certificate furnished by
the Operator; and, by such refusal of coverage each Non-Operating working
interest owner agrees to be responsible for his proportionate share of such
loss and indemnify the Operator for any such loss that would have been covered
under Operator's OEE coverage, regardless of the degree or type of negligence,
either sole, joint, concurrent or gross, anything in this Agreement to the
contrary notwithstanding.
EXHIBIT "E"
GAS BALANCING AGREEMENT
Attached to and made a part of that certain Joint Operating
Agreement dated February 1, 1994, by and between Wagman
Petroleum, Inc. as Operator and Natural Gas Technologies, Inc.
as Non-Operator(s).
1. Ownership of Gas Production
(a) It is the intent of the parties that each party shall have the right
to take in kind and separately dispose of its proportionate share of gas
(including casinghead gas) produced from each formation in each well located
on acreage ("Contract Area") covered by the Operating Agreement to which this
Exhibit is attached "Operating Agreement").
(b) Operator shall control the gas production and be responsible for
administering the provisions of this Agreement, and shall make reasonable
efforts to deliver or cause to be delivered gas to the parties' gas purchasers
as may be required in order to balance the accounts of the parties in
accordance with the provisions herein contained. For the purposes of this
Agreement, Operator shall maintain production accounts of the parties based
upon the number of MMBTU's actually contained in the gas produced from a
particular formation in a well and delivered at the outlet of lease equipment
for each party's account regardless of whether sales of such gas are made on a
wet or dry basis. All references in the Agreement to quantity or volume shall
refer to the number of MMBTU's contained in the gas stream. Toward this end,
Operator shall periodically determine or cause to be determined the BTU
content of gas produced from each formation in each well on a consistent basis
and under standard conditions pursuant to any method customarily used in the
industry.
2. Balancing of Production Accounts
(a) Any time a party, or such party's purchaser is not taking or
marketing its full share of gas produced from a particular formation in a well
("non-marketing party"), the remaining parties ("marketing party") shall have
the right, but not the obligation, to produce, take, sell and deliver for such
marketing parties accounts, in addition to the full share of gas to which the
marketing parties are otherwise entitled, all or any portion of the gas
attributable to a non-marketing party. (Gas attributable to a non-marketing
party, taken by a marketing party, is referred to in this Agreement as
"overproduction"), if there is more than one marketing party taking gas
attributable to a non-marketing party's gas in the ratio that such marketing
party's interest in production of all marketing parties.
(b) A party that has not taken its proportionate share of gas produced
from any formation in a well ("Underproduced Party") shall be credited with
gas in storage equal to its share of gas produced but not taken, less its
share of gas used in lease operations, vented or lost when a marketing party
has elected to take gas attributable to such non-marketing party
("underproduction"). Such Underproduced Party, upon giving timely written
notice to Operator, shall be entitled, on a monthly basis beginning the month
following receipt of notice, to produce, take, sell and deliver, in addition
to the full share of gas to which such party is otherwise entitled, a quantity
of gas ("make-up gas") equal to fifty percent (50%) of the total share of gas
attributable to all parties having cumulative overproduction ("Overproduced
Party"). Such make-up gas shall be credited against such Underproduced
Party's accrued underproduction in order of accrual (first in, first out
accounting method). Notwithstanding the foregoing and subject to subsection
(e) below, and Overproduced Party shall never be obligated to reduce its takes
to less than fifty percent (50%) of the quantity to which such party is
otherwise entitled.
(c) If there is more than one Underproduced Party desiring make-up gas,
each such Underproduced Party shall be entitled to make-up gas in the ratio
that such party's interest in production bears top the total interest in
production of all parties then desiring make-up gas. Any portion of the
make-up gas to which an Underproduced Party is entitled and which is not taken
by such Underproduced Party may be taken by any other Underproduced Party.
(d) If there is more than one Overproduced Party required to furnish
make-up gas, each such Overproduced Party shall furnish make-up gas in the
ratio that such party's interest in production bears to the total interest in
production of all parties then required to furnish make-up gas. Except as
provided in (e) below, each Overproduced Party in any formation in a well
shall be entitled, on a monthly basis, to take its full share of gas less its
share of the make-up gas then being produced from the particular formation in
the well which it is overproduced.
(e) If an Overproduced Party has recovered eighty percent (80%) of the
overproduced Party's share of the recoverable reserves from a particular
formation in a well, such Overproduction Party, upon being notified in writing
of such fact by Operator, shall cease taking gas from such formation in such
well and the remaining parties shall be entitled to take one hundred percent
(100 of such production until the accounts of the parties are balanced.
Thereafter, such Overproduced Party shall again have the right to take its
share of the remaining production, if any, in accordance with the provisions
herein contained. Notwithstanding anything to the contrary herein, after an
Overproduced Party has recovered its full share of the recoverable reserves
as so determined by the Operator from a particular formation in a well, such
Overproduced Party may continue to produce if such continued production is (i)
necessary for lease maintenance purposes or (ii) permitted by a majority of
the interest of the parties who have not produced their recoverable reserves
from such formation in such well, such majority approval to be evidenced by a
written ballot conducted by Operator.
3. Cash Balancing Upon Depletion
(a) If gas production from a particular formation in a well ceases and no
attempt is made to restore production within sixty (60) days thereof, Operator
shall distribute, within ninety (90) days of the date the well last produced
gas from such formation, a statement of net unrecouped underproduction and
overproduction and the months and years in which such unrecouped production
accrued ("final accounting").
(b) Within thirty (30) days of receipt of such final accounting, each
Overproduced Party shall remit to Operator for disbursement to the
Underproduced Party a sum of money (which sum shall not include interest)
equal to the amount actually received or constructively received under
subparagraph (e) below, by Overproduced Party for sales during the month(s) of
overproduction, calculated in order of accrual but less applicable taxes,
royalties and reasonable costs of marketing and transporting such gas actually
paid by such Overproduced Party. Such remittance shall be based on number of
MMBTU's of overproduction and shall be accompanied by a statement showing
volumes and prices for each month with accrued unrecouped overproduction.
(c) Within thirty (30) days receipt of any such remittance by Operator
from an Overproduced Party, Operator shall disburse such funds to the
Overproduced Party in accordance with the final accounting. Operator assumes
no liability with respect to any such payment (unless such payment is
attributable to Operator's overproduction, it being the intent of the parties
that each Overproduced Party shall be solely responsible for reimbursing each
Underproduced Party for such Underproduced Party's respective share of
overproduction taken by such Overproduced Party in accordance with the
provisions herein contained. If any party fails to pay any such sum due under
the terms hereof after demand therefore by the Operator, the Operator may turn
responsibility for the collection of such sum to the Underproduced Party to
whom it is owed, and Operator shall have no further responsibility for
collection.
(d) In determining the amount of overproduction for which settlement is
due, production taken during any month by an Underproduced Party in excess of
such Underproduced Party's share shall be applied to reduce prior deficits in
the order of accrual of such deficits.
(e) An overproduced Party that took gas in kind for its own use, sold gas
to an affiliate, or otherwise disposed of gas in other than a cash sale shall
pay for such gas at market value at the time it was produced, even if the
Overproduced Party sold such gas to an affiliate at the price greater or
lesser than market value.
(f) If refunds are later required by any governmental authority, each
party shall be accountable for its respective share of such refunds as finally
balanced hereunder.
4. Deliverability Tests
At the request of any party, Operator may produce the entire well stream
for a deliverability test not to exceed seventy-two (72) hours in duration (or
such longer period of time as may be mutually agreed upon by the parties) if
required under such requesting party's gas sales or transportation contract.
5. Nominations
Each party shall, on a monthly basis, give Operator sufficient time and
data either to nominate such party's respective shares of gas to the
transporting pipeline(s) or, if the Operator is not nominating such party's
gas, to inform Operator of the manner in which to dispatch such party's gas.
Except as and to the extent caused by Operator's gross negligence or willful
misconduct, Operator shall not be responsible for any fees and/or penalties
associated with imbalance charges by any pipeline to any Underproduced or
Overproduced Party.
6. Statements
On or before the twenty-fifth (25th) day of the month following the month
of production, each party taking gas shall furnish or cause to be furnished to
Operator a statement of gas taken expressed in terms of MMBTU's. If actual
volume information sufficient to prepare such statement is not made available
to the taking party in sufficient time to prepare it, such taking party shall
nevertheless furnish a statement of its good faith estimate of volume taken.
Within twenty (20) days of the receipt of all such statements, Operator shall
furnish to each party a statement of the gas balance among the parties
including the total quantity of gas produced from each formation in each well,
the portion thereof used in operations, vented or lost and the total quantity
delivered for each party's account. Any error or discrepancy in Operator's
monthly statement shall be promptly reported to Operator and Operator shall
make a proper adjustment thereof within thirty (30) days after final
determination of the correct quantities involved; provided, however, that if
no errors or discrepancies are reported to Operator within two (2) years from
the date of any statement, such statement shall be conclusively deemed to be
correct. Additionally, within ninety (90) days from the end of each calendar
year, or from a transfer of interest of a party hereto, non-operators or such
transferring party shall furnish to Operator, for the sole purpose of
establishing records sufficient to verify cash balancing values, a statement
reflecting amounts actually received or constructively received udder
paragraph 3(e), on a monthly basis for the calendar year preceding the
immediately concluded calendar year.
7. Payment of Taxes
Each party taking gas shall pay or cause to have paid any and all
production, severance, utility, sales, excise or other taxes due on such gas.
8. Operating Expenses
The operating expenses are to be borne as provided in the Operating
Agreement, regardless of whether all parties are selling or using gas or
whether the sales and use of each are in proportion to their respective
interests in such gas.
9. Overproducing Allowable
Each party shall give Operator sufficient time and data to enable Operator
to make appropriate nominations, forecasts and/or filings with the regulatory
bodies having jurisdiction to establish allowable. Each party shall at all
times regulate its takes and deliveries from the Contract Area so that the
well(s) covered hereby shall not be curtailed and/or shut-in for overproducing
the allowable production assigned thereto by the regulatory body having
jurisdiction.
10. Payment of Leasehold Burdens
At all times while gas is produced from the Contract Area, each party
agrees to make appropriate settlement of all royalties, overriding royalties
and other payments out of or in lieu of production for which such party is
responsible just as if such party were taking or delivering to a purchaser
such party's full share only, of such gas production exclusive of gas used in
Other Provisions
The provisions of this Article shall take precedence over any provisions
in this Operating Agreement which may be in conflict therewith.
1. Non-Consent - "In or Out". Notwithstanding any provision to the
contrary set out in Article VI.B.1-2 and Article VI.D.1 (Option No.2), any
party that elects not to participate in the drilling of a well proposed
hereunder, or having elected to participate in such drilling, elects not to
participate in completion of such well in accordance with Article VII.D.1
(Option No.2), shall forfeit all right, title, and interest in and to the
spacing unit for such well as established under the applicable regulatory
authority, and in and to such well and all equipment thereon or appurtenant
thereto, and will promptly assign, free of Subsequently Created Interests, its
right, title and interest in such unit (and the oil and gas leases comprising
same) and such well and the equipment thereon or appurtenant thereto to the
parties participating in the drilling or completion of such well, as the case
may be, in proportion to the interests at which such parties are participating
in the drilling or completion, as the case may be. Should the size of the
unit be reduced by the regulatory authority subsequent to a party's election
not to participate in a drilling or completion operation, such a reduction
shall not effect a change in the acreage forfeited and relinquished
hereunder by a Non-Consenting Party.
2. Payment of Texas. Operator shall pay or cause to be paid all taxes,
either State or Federal, except Windfall Profits Taxes, owing or which may be
payable on production from the Contract Area, whether in the form of a
severance or production tax; provided, however, if at any time any party is
taking its share of production in kind or separately disposing of its share of
the production, such party shall pay or cause to be paid said taxes as to such
production.
3. Priority of Operation. It is agreed that where a well, which has been
authorized under the terms of this Agreement by all parties, or by one or more
but less than all parties under Article VI.B.2., shall have been drilled to
the objective depth or the object formation, whichever is deepest, and the
parties participating in the well cannot agree upon the sequence and timing of
further operations regarding such well, the following elections shall control
in the order enumerated hereafter: (1) an election to do additional logging,
coring, or testing; (2) an election to attempt to complete the well at
either the objective depth or objective formation; (3) an election to plug
back and attempt to complete said well; (4) election to deepen said well;
and (5) an election to side-track the well.
It is agreed, however, that if at the time said participating parties are
considering any of the above election the hole is in such a condition that a
reasonably prudent Operator would not conduct the operations contemplated by
the particular election involved for fear of placing the hole in jeopardy or
losing same prior to completing the well in the objective depth or objective
formation, such election shall not be given the priority hereinabove set
forth.
4. Prior Operating Agreement. If any of the lands and depths which are
subject to this Operating Agreement were subject to any other Operating
Agreement between the parties hereto, or any other parties, covering any other
lands and depths, then this Operating Agreement shall supersede such other
Operating Agreement as to such interests, for the term of this Operating
Agreement.
5. Execution Documents. This Agreement shall be binding upon Operator and
each Non-Operator when this Agreement or a counterpart thereof has been
executed by any such Non-Operator and the Operator notwithstanding that this
agreement is not then or thereafter executed by all of the parties to which it
is tendered or which are listed on Exhibit "A" as owning an interest in the
Contract area or which own, in fact, an interest in the Contract Area. The
failure of any party to execute this Agreement shall not render it ineffective
as to any party which does execute the same. This Agreement may also be
ratified by separate instrument referring hereto, each of which shall have the
effect of the original Agreement and of adopting by reference all of the
provisions herein contained.
It is not the intent of the parties that any provision herein violate any
applicable law regarding the rule against perpetuities, the suspension of an
absolute power of alienation or other rule regarding the vesting or duration
of estates, and this Agreement shall be construed as not violating such rule
to the extent that same can be so construed consistent with the intent of the
parties. In the event, however, any such provision hereof is determined to
violate such rule, then such provision shall nevertheless be effective for the
maximum period (but not longer than the maximum period) permitted by such rule
which will result in no violation.
This Agreement is made solely for the benefit of those persons who are the
signatory parties hereto (including those persons succeeding to all or a part
of the interest of any original party if such succession is recognized under
the other provisions hereof), and no other person shall have a claim or be
entitled to enforce any rights, benefits, or obligations under this Agreement.
6. Regulatory Expenses. Notwithstanding anything to the contrary contained
in this Operating Agreement or the Accounting Procedure (Exhibit "C"), the
following items pertaining to the Contract Area shall not be considered as
administrative Overhead, but Operator subject to Non-Operators approval
pursuant to Article VII.D.3., shall be entitled to make a direct charge
against the joint account for same:
Fees for legal services, title costs, costs and expenses in connection with
preparations and presentation of evidence and exhibits at Governmental
Regulatory hearings, preparation and handling of application to and hearings
before the Federal Energy Regulatory Commission and other government
agencies or regulatory bodies; provided, however, that such services,.
hearings, and applications relate directly to operations on the Contract
Area. No direct charges shall be permitted against the joint account for
participation in proceedings of a general nature or application, including
but not limited to, rule makings and policy makings before the Federal
Energy Regulatory Commission and other governmental agencies or regulatory
bodies.
Non-Operator agrees to indemnify and hold Operator harmless from any and all
losses, damages, injuries, claims and causes of action arising out of sight
of, incident to, or resulting directly or indirectly from Operator's
interpretation or application of rules, rulings, regulations or orders of the
Department of Energy of Federal Energy Regulatory Commission or predecessor
or successor agencies (or any other governmental regulatory agencies, bodies
or boards or commissions) to the extent Operator's interpretation or
application of such rules, rulings, regulations or orders were made in good
faith and exercise of reasonable care. All fines, interests, penalties, etc.
levelled by OSHA, DOE, EPA, FTC or any other governmental agency which result
from action taken in good faith and with the exercise of reasonable care shall
be paid for out of the Joint Account
7. Operator's Right to Receive and Net out Revenues. Notwithstanding the
provision of Article VI.C., Operator shall have the right to receive from all
purchasers of production the proceeds attributable to the interest of such
Non-Operator, and such Non-Operators hereby agree to and hereby do authorize
and direct the purchasers of production to make direct payment to Operator of
their respective shares of all proceeds from the sale of production in such
event. Operator is authorized to deduct each month from the proceeds so
received from the purchasers of production all operating costs and charges
assessable to such Non-Operators and permitted under this Agreement, and remit
to such Non-Operators their respective net shares of the said proceeds.
8. Bankruptcy. If, following the granting of relief under the Bankruptcy
Code to any party hereto as debtor thereunder, this Agreement should be held
to be an executory contract within the meaning of 11 U.S.C. 365, then the
Operator,or (if the Operator is the debtor in bankruptcy) any other party,
shall be entitled to a determination by debtor or any trustee for debtor
within thirty (30) days from the date an order for relief is entered under the
Bankruptcy Code as to the rejection or assumption of this Operating Agreement.
In the event of an assumption, Operator or said other party shall be entitled
to adequate assurance to future performance of debtor's obligation hereunder
and the protection of the interest of all other parties.
9. Parties to Operations. With respect to an operation pursuant to this
Agreement in which less than all of the parties have participated and for
which the Consenting Parties have not been fully reimbursed for the amounts
provided in Article VI.B. ("Non-consent Well"), the right to propose and to
participate in further operations under Article VI.B. for such well shall be
limited to only those parties which elected to participate in such Non-Consent
Well. If less than all the parties elect to participate in a drilling or
deepening operation proposed pursuant to Article VI.B., the interest
relinquished by the Non-Consenting parties to the Consenting Parties under
Article VI.B.2. shall relate only and be limited to the lesser of i) the
total depth actually drilled, or ii) the objective depth or formation of which
the parties were given notice under Article VI.B.1. ("Initial Proposed
Objective"). In the event any Consenting Party desires to drill or deepen a
Non-Consent Well to a depth below the initial Proposed Objective, such Party
shall give notice thereof, complying with the requirements of Article VI.B.1,
to all parties (including Non-Consenting Parties). Thereupon Article VI.B.
shall apply and all parties receiving such notice shall have the right to
participate or not participate in the drilling of such Well pursuant to said
Article VI.B. In the event, however, any Non-Consenting Party shall pay or
make reimbursement (as the case may be) of its proportional share of the
costs and expenses incurred in drilling said well from the surface to total
depth, as deepened or proposed to be deepened, which Non-Consenting Party
would have paid if such well had initially been proposed to be drilled to such
depth and Non-Consenting Party had agreed to participate therein.
10. Required Operations. Notwithstanding any of the provisions of this
Agreement (including this "Other Provisions" rider), if a proposed operation
is necessary to maintain a lease covered by this Agreement in force or to earn
a lease or interest therein under an Agreement which would otherwise expire
unless such operations are conducted, then in lieu of being penalized under
Article VI.B.2., each Non-Consenting Party shall assign to Consenting Parties
all of such Non-Consenting Party's right, title and interest in and to the
interest(s) or portion thereof which would be lost or not earned if such
operation was not conducted, together with any lease or interest therein
pooled therewith to form a pool or unit under the regulations of the
governmental authority having jurisdiction or under any applicable agreement.
Such assignment shall be promptly due upon commencement of said proposed
operations by Consenting Parties, and if the assignment is in favor of more
than one party, the assigned interest shall be shared by the Consenting
Parties in the proportion that the interest of each bears to the interest of
all Consenting Parties unless otherwise agreed to in writing. Each such
assignment shall be free of any subsequently created interest arising under
the assigning party. For the purposes of defining necessary operations to
maintain a lease or agreement to earn a lease(s) in force which would
otherwise expire, such operations will be deemed necessary if proposed within
six (6) months of the date the lease or agreement would otherwise expire.
Nothing herein shall be construed as requiring a relinquishment of a party's
interest in any producing wells or spacing units associated therewith.
11. Assignment. No assignment or other transfer or disposition of any
interest subject to this Agreement shall be effective as to Operator or the
other parties hereto until the first day of the month following the month in
which i) Operator receives a duplicate of a certified copy of the instrument
evidencing such assignment, transfer or disposition, and ii) the person
receiving such assignment, transfer or disposition has become obligated by
instrument satisfactory to Operator to observe, perform and be bound by all of
the covenants, terms and conditions of this Agreement, including all exhibits,
attachments, or amendments hereto Prior to such date, neither Operator nor
any other party shall be required to recognize such assignment, transfer or
disposition for any purpose ut may continue to deal exclusively with the party
making such assignment, transfer or disposition in all matters under this
Agreement, including billings. No assignment or other transfer or disposition
of an interest subject to this Agreement shall relieve a party of its
obligations accrued prior to the effective date aforesaid.
12. Collection. In the event Operator shall ever be required to bring
legal proceedings in order to collect any sums due from any Non-Operator under
this Agreement, then Operator shall also be entitled to recover all court
costs, costs of collection, and reasonable attorney's fees, which costs the
lien provided for herein shall also secure, if the Operator is the successful
party.
13. Advance of Well Costs. If a proposal is made pursuant to this
Operating Agreement for the drilling, completing, deepening, reworking,
sidetracking, or recompletion of any well, any Non-Operator electing to
participate in the proposed operation shall no later than thirty (30) days
prior to the proposed spud date (if drilling) or the proposed commencement
date of any operation other than drilling advance its portion of the proposed
costs to Operator. Failure of any Non-Operator to advance its share of the
costs within the thirty (30) day period shall constitute a withdrawal of its
consent and an election by such Non-Operator to become a non-consenting party
to such operation. The provisions of this Article XV shall be in addition to
and not in lieu of other provisions of the Operating Agreement, and
particularly Article VII.C.
14. Proposal of Operations. Only the Operator may propose the drilling,
completing, deepening, sidetracking, reworking or recompleting of a well on
the Contract Area.
Exhibit 10.9
NATURAL GAS TECHNOLOGIES, INC.
PURCHASE AGREEMENT
THIS AGREEMENT, dated April 1, 1997, but effective October 11, 1996, is hereby
entered into by and between Mobile Americlean, Ltd., 11535 Sundance Lane, Boca
Raton, Florida 33428 (hereinafter referred to as "MAI"), and Natural Gas
Technologies, Inc., 16775 Addison Road, #300, Dallas, Texas 75248
(hereinafter referred to as "NGT").
WHEREAS, MAI is the owner of certain personal property and license agreement
to blend gasoline under a patented process (collectively hereinafter referred
to as"Assets") and NGT wishes to acquire all or a part of those Assets for
cash, stock and other good and valuable considerations.
NOW, THEREFORE both parties have agreed to the following regarding the sale
and purchase of the Assets of MAI:
1. MAI does hereby sell the assets as follows:
* The License Agreement and all rights thereunder to blend gasoline
under the Americlean process. Valued at $360,000.
* The office furnishings and equipment. Valued at $3,000.
* The blending tower and equipment. Valued at $37,000
2. MAI does hereby agree to provide the following at the time of sale:
* The assignment of the License Agreement and all rights thereunder to
blend gasoline under the Americlean process.
* A letter from legal counsel stating that MAI has a license to blend
under the Americlean patented process in good standing.
3. It is understood and agreed that NGT is assuming no liabilities
associated with MAI or the previous operators of the Mobile Plant,
legal fees, etc., with the purchase of these assets.
4. NGT shall pay to MAI 50,000 shares (Fifty thousand) shares of the
Company's Preferred Stock, Series B, and 100,000 shares in Common
Stock.
5. The rights of the Common and Preferred Shares of stock are outlined
in Exhibit "A".
Mobile Americlean Ltd. 1
A Limited Partnership organized under the
laws of the State of Florida by Mobile
Americlean, Inc. its General Partner.
BY: /S/ TERRENCE R. HUSTON Secretary: /S/ T. R. HUSTON
Terrence R. Huston, President
Natural Gas Technologies, Inc.
16775 Addison Rd., #300
Dallas, TX 75248
BY: /S/ BRENT A. WAGMAN Secretary: /S/ WARREN DONOHUE
Brent A. Wagman, President
Exhibit 10.10
ASSIGNMENT
For valuable consideration in hand paid, the receipt of which is herewith
acknowledged, Mobile Americlean Ltd. I, a limited partnership organized under
the laws of the State of Florida, by its General Partner, Mobile Americlean,
Inc., a corporation of the State of Florida, by these presents, assigns to
Natural Gas Technologies, a corporation of the State of Texas, all of its
right, title and interest in ant o a certain license agreement attached
hereto, and made by reference a part hereof, incorporating the use of Patent,
5004,850 owned by Interstate Chemical, Inc., and by agreement, licensed to
Mobile Americlean, Inc.
Mobile Americlean Ltd. I represents to Natural Gas Technologies that at
the closing of this transaction, the Mobile Americlean Ltd. I's location on
Blakely Island, Mobile, Alabama will be free and clear of spoiled and
contaminated dirt, and free and clear of any lien against Mobile Americlean
Ltd. I or Mobile Americlean, Inc.
ATTEST: Mobile Americlean Ltd. I
A Limited Partnership, organized
under the laws of the State of
Florida by Mobile Americlean, Inc.,
its general partner
unreadable /S/ TERRENCE R. HUSTON
Secretary Terrence Huston, President
STATE OF FLORIDA }
}
COUNTY OF BROWARD}
On this the 11 day of October , 1996 before me personally came
Terrence Huston to me known, who, being by me duly sworn, did depose and say
that he is President of Mobile Americlean, Inc. , General partner of Mobile
Americlean Ltd., I, a limited partnership, ad that he executed the foregoing
instrument at the direction of and on behalf of said limited partnership.
/S/ MARYANNE ANTOGONIANNI
Notary Public
Commission Expires:
Nov. 11, 1999
CC# 151515
Exhibit 10.11
OFFICE LEASE AGREEMENT
by and between
BROOKDALE INVESTORS, L.P.
(Landlord)
and
Natural Gas Technologies, Inc.-
(Tenant)
Dated: March 12, 1997
TABLE OF CONTENTS
Page
ARTICLE 1. PREMISES . . . . . . . . . . . . . . . . . . . . . .1
ARTICLE 2. TERM AND CONDITION OF LEASED PREMISES. . . . . . . .1
ARTICLE 3. USE, NUISANCE, OR HAZARD . . . . . . . . . . . . . .2
ARTICLE 4. RENT . . . . . . . . . . . . . . . . . . . . . . . .2
ARTICLE 5. RENT ADJUSTMENT. . . . . . . . . . . . . . . . . . .3
ARTICLE 6. SERVICES TO BE PROVIDED BY LANDLORD. . . . . . . . .6
ARTICLE 7. REPAIRS AND MAINTENANCE BY LANDLORD. . . . . . . . .7
ARTICLE 8. REPAIRS AND CARE OF BUILDING COMPLEX BY TENANT . . .7
ARTICLE 9. TENANT'S EQUIPMENT AND INSTALLATIONS . . . . . . . .8
ARTICLE 10. FORCE MAJEURE. . . . . . . . . . . . . . . . . . . .8
ARTICLE 11. MECHANICS' AND MATERIALMAN'S LIENS . . . . . . . . .8
ARTICLE 12. ARBITRATION. . . . . . . . . . . . . . . . . . . . .9
ARTICLE 13. INSURANCE. . . . . . . . . . . . . . . . . . . . . .9
ARTICLE 14. QUIET ENJOYMENT. . . . . . . . . . . . . . . . . . 10
ARTICLE 15. ALTERATIONS. . . . . . . . . . . . . . . . . . . . 10
ARTICLE 16. FURNITURE, FIXTURES, AND PERSONAL PROPERTY . . . . 11
ARTICLE 17. TAXES. . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE 18. ASSIGNMENT AND SUBLETTING. . . . . . . . . . . . . 11
ARTICLE 19. FIRE AND CASUALTY. . . . . . . . . . . . . . . . . 13
ARTICLE 20. CONDEMNATION . . . . . . . . . . . . . . . . . . . 14
ARTICLE 21. HOLD HARMLESS. . . . . . . . . . . . . . . . . . . 14
ARTICLE 22. DEFAULT BY TENANT. . . . . . . . . . . . . . . . . 14
ARTICLE 23. LIEN FOR RENT AND SECURITY AGREEMENT . . . . . . . 18
ARTICLE 24. RIGHT TO RELOCATE. . . . . . . . . . . . . . . . . 18
ARTICLE 25. ATTORNEYS' FEES. . . . . . . . . . . . . . . . . . 19
ARTICLE 26. NON-WAIVER . . . . . . . . . . . . . . . . . . . . 19
ARTICLE 27. RULES AND REGULATIONS. . . . . . . . . . . . . . . 19
ARTICLE 28. ASSIGNMENT BY LANDLORD . . . . . . . . . . . . . . 19
ARTICLE 29. LIABILITY OF LANDLORD. . . . . . . . . . . . . . . 19
ARTICLE 30. SUBORDINATION AND ATTORNMENT . . . . . . . . . . . 19
ARTICLE 31. HOLDING OVER . . . . . . . . . . . . . . . . . . . 20
ARTICLE 32. SIGNS. . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE 33. HAZARDOUS SUBSTANCES . . . . . . . . . . . . . . . 20
ARTICLE 34. COMPLIANCE WITH LAWS AND OTHER REGULATIONS . . . . 21
ARTICLE 35. SEVERABILITY . . . . . . . . . . . . . . . . . . . 21
ARTICLE 36. NOTICES . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE 37. OBLIGATIONS OF SUCCESSORS, PLURALITY, GENDER . . . 22
ARTICLE 38. ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . 22
ARTICLE 39. PARAGRAPH CAPTIONS . . . . . . . . . . . . . . . . 22
ARTICLE 40. CHANGES. . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE 41. AUTHORITY. . . . . . . . . . . . . . . . . . . . . 23
ARTICLE 42. BROKERAGE. . . . . . . . . . . . . . . . . . . . . 23
ARTICLE 43. EXHIBITS . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE 44. APPURTENANCES. . . . . . . . . . . . . . . . . . . 23
ARTICLE 45. COUNTERCLAIM AND JURY. . . . . . . . . . . . . . . 23
ARTICLE 46. RECORDING. . . . . . . . . . . . . . . . . . . . . 23
ARTICLE 47. MORTGAGEE PROTECTION . . . . . . . . . . . . . . . 24
ARTICLE 48. SHORING. . . . . . . . . . . . . . . . . . . . . . 24
LEASE AGREEMENT
THIS LEASE AGREEMENT (Lease) is made as of the 6 day of March, 1997, by
Brookdale Investors, L.P. (Landlord), and Natural Gas Technologies, Inc.
(Tenant).
W I T N E S S E T H:
ARTICLE 1. PREMISES
Subject to all of the terms and conditions hereinafter set forth,
Landlord leases to Tenant and Tenant leases from Landlord the premises (Leased
Premises), outlined on Exhibit B to this Lease, containing approximately
square feet of rentable area (Rentable Area of the Leased Premises) on the
Third floor of the 6-story office building commonly known as Atrium at Bent
Tree (Building). The land described in Exhibit A to this Lease and all
improvements thereon and appurtenances thereto, including, but not limited to,
the Building, access roadway, and related areas, are in this Lease
collectively called the "Building Complex."
ARTICLE 2. TERM AND CONDITION OF LEASED PREMISES
2.1. The term of the Lease (Term) will commence on April 1, 1997
(Commencement Date), and end on August 31, 1998 (Expiration Date), unless
sooner terminated (Termination Date) as hereinafter provided. Notwithstanding
the foregoing, if Landlord's Work (as hereinafter defined) has not been
substantially completed by April I 1 199 7- , for any reason other than a
delay that is caused by Tenant, then the Commencement Date will be postponed
until the date of substantial completion In that event, the Expiration Date
will be Auguqt 31, 1998 after the Commencement Date. Landlord's Work will be
deemed substantially completed upon the issuance of a certificate of
substantial completion by Landlord's architect or of a temporary or permanent
Certificate of Occupancy by the local building authority even though minor or
unsubstantial details of construction, mechanical adjustment, or decoration
remain to be performed. The Commencement Date of this Lease and the
obligation of Tenant to pay rent, additional rent, and all other charges
hereunder shall not be delayed or postponed by reason of any delay by Tenant
in performing changes or alterations in the Leased Premises to be performed by
Tenant. If the Term commences on a day other than the first day of a month,
then the Rent (as defined below in Section 4.1) shall be immediately paid for
such partial month prorated on the basis of a thirty (30) day month.
2.2. Landlord shall, at its sole cost and expense, not to exceed $ per
rentable square foot, perform the construction work (Landlord's Work) set
forth in the plans and specifications annexed hereto as Exhibit C. To the
extent not specified therein, items or materials shall be "building standard"
(as to both quality and quantity), as determined by Landlord. Tenant shall
pay for any cost incurred as a result of any change in said plans and
specifications, and shall be responsible for any delays caused by any such
change.
2.2.1. Tenant shall give Landlord written notice of any
incomplete Landlord's Work or unsatisfactory conditions or defects in
the Leased Premises within thirty (30) days after the Commencement Date,
and Landlord shall, at its sole expense, complete the Landlord's Work
and remedy the unsatisfactory conditions or defects as soon as possible.
The existence of any incomplete Landlord's Work, unsatisfactory
conditions, or defects shall not affect the Commencement Date or the
obligation of Tenant to pay Rent.
2.2.2. Tenant represents that Tenant has inspected the Leased
Premises andthe Building, is thoroughly acquainted with their condition,
and takes the Leased Premises "AS IS AND WITH ALL FAULTS," and the taking
of possession of the Leased Premises by Tenant will be conclusive
evidence that the Leased Premises and the Building were in good and
satisfactory condition at the time possession was taken by Tenant.
Neither Landlord nor Landlord's agents have made any representations
or promises with respect to the condition of the Building, the Leased
Premises, the land upon which the Building is constructed, or any other
matter or thing affecting or related to the Building or the Leased
Premises, except as herein expressly set forth, and no right, easement,
or license is acquired by Tenant by implication or otherwise except as
expressly set forth in this Lease.
ARTICLE 3. USE, NUISANCE, OR HAZARD
3.1. Tenant will use and occupy the Leased Premises solely for general
office purposes and for no other purposes without the prior written consent of
Landlord.
3.2. Tenant will not use, occupy, or permit the use or occupancy of the
Leased Premises for any purpose that Landlord, in its reasonable discretion,
deems to be illegal, immoral, or dangerous; permit any public or private
nuisance; do or permit any act or thing that may disturb the quiet enjoyment
of any other tenant of the Building Complex; keep any substance or carry on or
permit any operation that might introduce offensive odors or conditions into
other portions of the Building Complex; use any apparatus that might make
undue noise or set up vibrations in or about the Building Complex; permit
anything to be done that would increase the premiums paid by Landlord for fire
and extended coverage insurance on the Building Complex or its contents or
cause a cancellation of any insurance policy covering all or any part of
the Building Complex or any of its contents; or permit anything to be done
that is prohibited by or that shall in any way conflict with any law, statute,
ordinance, or governmental rule or regulation now or hereinafter in force.
Should Tenant do any of the foregoing without the prior written consent of
Landlord, it will constitute an Act of Default (as defined below in Section
22.1) and will enable Landlord to resort to any of its remedies.
ARTICLE 4. RENT
4.1. Tenant hereby agrees to pay Landlord a base annual rental (Base
Rent) of See Exhibit E (Base rent schedule) and Thirty six thousand-five
hundred ninety two dollars and fifty cents ($36,592.50) per year for each year
during the Term. Base Rent will be payable in monthly installments of See
Exhibit E (Base rent schedule) ($3049.38) each (Monthly Rent). An installment
of Monthly Rent will be due and payable in advance on the first day of each
calendar month during the Term, and the first monthly installment will be due
and payable on the first day of the first calendar month after the
Commencement Date. In addition to the Base Rent, Tenant also agrees to pay
the Operating Expenses, Taxes, and any and all other sums of money that become
due and payable by Tenant as hereinafter set forth, all of which shall
constitute additional rent under this Lease (Additional Rent). The Monthly
Rent and the Additional Rent are sometimes hereinafter collectively called
"Rent" and shall be paid by check or money order when due in lawful money of
the United States without demand, deduction, abatement, or offset at such
place as Landlord may designate from time to time. Landlord expressly
reserves the right to apply any payment received to Base Rent or to any other
item of Rent not paid by Tenant.
4.2. If any Monthly Rent or Additional Rent or other amount payable by
Tenant hereunder is not paid within five (5) days after its due date, Tenant
shall pay to Landlord a late charge (Late Charge), as Additional Rent, in an
amount of five percent (5%) of the amount of such late payment. Failure to
pay any Late Charge will be deemed a Monetary Default (as defined below in
Section 22.1.1). The requirement for the Late Charge will be in addition to
all other rights and remedies available to Landlord hereunder, at law or in
equity, and will not be construed as liquidated damages or as limiting
Landlord's remedies in any manner. Failure to charge or collect the Late
Charge in connection with any one (1) or more such late payments will not
constitute a waiver of Landlord's right to charge and collect a Late Charge in
connection with any other or similar or like late payment.
4.3. Tenant shall pay the amount of Three thousand forty nine dollars
and thirty eight cents ($3049.38) upon the execution of this Lease by Tenant,
which sum shall be the Monthly Rent for the first calendar month of occupancy
of the Term. Tenant shall also pay to Landlord the sum of Three thousand
forty nine dollars and thirty eight cents ($3049.38) upon the execution of
this Lease by Tenant as security for Tenant's faithful performance of all of
the terms, covenants, conditions, and obligations required to be performed by
Tenant hereunder (Security Deposit). If Tenant defaults in its performance of
any of such terms, covenants, conditions, or obligations, Landlord may, from
time to time and without prejudice to any other remedy, apply the Security
Deposit to the extent necessary to (i) make good any arrears of Rent or pay
any sums owed to Landlord by Tenant; (ii) pay for any damage, injury, expense,
or liability sustained by Landlord as a result of any default, including, but
not limited to, any damages or deficiencies incurred in the reletting of the
Leased Premises and all attorneys' fees associated therewith, regardless of
whether the accrual of such damages or deficiencies occurs before or after an
eviction; and (iii) pay for the cost of cleaning the Leased Premises. Should
Landlord use all or any portion of the Security Deposit to cure any default by
Tenant, Tenant shall replace and replenish all of the Security Deposit used in
connection with such cure within ten (10) days from Tenant's receipt of
written request by Landlord therefor. Failure by Tenant to replace or
replenish the Security Deposit within said time will constitute an Act of
Default and will entitle Landlord to resort to any of its remedies. The
Security Deposit will not be considered an advance payment of Rent nor a
measure Of Landlord's damages in case of default by Tenant. Landlord will not
be required to account separately for the Security Deposit and may commingle
same with any of Landlord's funds. If Tenant performs all of its obligations
hereunder, the Security Deposit (or any portion thereof remaining after its
application as permitted in Section 4.3 above) will be returned without
payment of interest thereon to Tenant within sixty (60) days after the
Expiration Date or Termination Date, whichever is later. In the event of a
sale or transfer of the Building, Landlord agrees to transfer Tenant's
Security Deposit to such Buyer or Successor and such Buyer or Successor shall
be bound by this section regarding return of Security Deposit to Tenant.
4.4. If the Term commences on a date other than the first day of a
calendar month or expires or terminates on a date other than the last day of a
calendar month, the Rent for any such partial month shall be prorated to the
actual number of days Tenant is in occupancy of the Leased Premises for such
partial month.
4.5. All Rent and any other amount payable by Tenant to Landlord under
this Lease, if not paid when due, will bear interest from the date due until,
paid at an annual rate equal to the prime commercial rate announced from time
to time by Texas Commerce Bank, plus 500 basis points (whether or not that
announced rate is actually charged by such bank), but not in excess of the
maximum nonusurious rate permitted by applicable law. If under any
circumstance interest paid to Landlord under this paragraph plus any Late
Charge paid to Landlord are deemed under applicable law to be interest in
excess of the maximum nonusurious amount, then the excess is automatically to
be applied to the payment of all other sums then due and payable under this
Lease, and any remaining excess is to be paid to the Tenant. Failure to
charge or collect such interest in connection with any one (1) or more,
delinquent payments shall not constitute a waiver of Landlord's right to
charge and collect such interest in connection with any other or similar or
like delinquent payments.
4.6. If Tenant fails to make when due two (2) consecutive payments of
Monthly Rental: makes two (2) consecutive payments of Monthly Rent that are
returned to Landlord by Tenant's financial institution for insufficient funds,
Landlord may require, by giving written notice to Tenant, that all future
payments of Rent shall be made in cashiers check or by money order. The
foregoing is in addition to any other remedy of Landlord hereunder, at law or
in equity.
ARTICLE 5. RENT ADJUSTMENT
5.1. Definitions.
5.1.1. "Operating Expenses" as used herein, means all expenses,
costs, and disbursements of every kind and nature that Landlord pays or
becomes obligated to pay because of or in connection with the ownership,
operation, or maintenance of the Building Complex. if less than
ninety-five percent (95%) of the Rentable Area of the Building (as
defined below in Section 5.1.3) is actually occupied during any Lease
Year (as defined below in Section 5.1.2), Operating Expenses for that
Lease Year will be the amount that the Operating Expenses would have
been for such Lease Year had ninety-five percent (95%) of the Rentable
Area of the Building been occupied during all of that; Lease Year, as
determined by Landlord. Operating Expenses are to be computed in
accordance with generally accepted accounting principles, consistently
applied, and are to include, but not be limited to, the items as listed
below:
5.1.1.1. Wages, salaries, and any and all taxes, insurance,
and benefits of the Building manager and any clerical, maintenance,
or other management employees directly associated with the operation
of the Building;
5.1.1.2. All expenses for the Building management office
including rent, office supplies, and materials therefor;
5.1.1.3. All supplies, materials, and tools;
5.1.1.4. All costs incurred in connection with the
operation, maintenance, and repair of the Building Complex
including, but not limited to, the following: elevators; heating,
ventilating, and air conditioning systems; security (if any);
cleaning and janitorial; parking lot and landscaping; window
washing; and license, permit, and inspection fees;
5.1.1.5. Costs of water, pure water, sewer, electric, and
any other utility charges;
5.1.1.6. Costs of casualty, rental interruption, and
liability insurance, and any deductibles payable thereunder;
5.1.1.7. Management fees not exceeding 5% of the rents
derived by Landlord from the Building Complex;
5.1.1.8. Any and all Taxes (as defined below) whether
Federal, State, county, or municipal, and whether by taxing
districts or authorities presently in existence or by others
subsequently created (excluding, however, Federal and State taxes on
income, if any)and any costs and expenses of contesting the validity
of same. "Taxes" means all ad valorem taxes, personal property
taxes; all other taxes, assessments, embellishments, use and
occupancy taxes, and transit taxes; all water, sewer, and pure water
charges not included in Section 5.1.1.5 above; and all excises,
levies, licenses, fees and taxes, and all other similar charges,
levies, penalties, and taxes, if any, that are levied, assessed, or
imposed upon or due and payable in connection with, or constitute a
lien upon, the land, the Building, the facilities used in
connection therewith, the rentals or receipts therefrom, and all
taxes of whatsoever nature that are imposed in substitution for or
in lieu of any of the taxes, assessments, or other charges included
in this definition of Taxes;
5.1.1.9. The cost of any capital improvements made to the
Building Complex by Landlord after the date of this Lease that are
or may be required, by any law, ordinance, rule, regulation, or
otherwise that was not applicable or in effect at the time the
Building Complex was constructed, including, but not limited to, the
Americans with Disabilities Act, amortized over such period as
Landlord shall reasonably determine, together with interest on the
unamortized balance;
5.1.1.10. The cost of any labor or energy saving device or
other equipment installed by Landlord that improves the operating
efficiency of any system within the Building Complex and thereby
reduces Operating Expenses. Landlord may add to Operating Expenses
in each Lease Year during the useful life of such device or
equipment an amount equal to the annual amortization allowance of
the cost of such device or equipment as determined in accordance
with generally accepted accounting principles, consistently applied,
together with interest on the unamortized balance thereof; provided,
however, that the amount of such allowance and interest shall not
exceed the annual cost or expense reduction attributed by Landlord
to such device or equipment; and
5.1.1.11. Legal, accounting, inspection, and consultation
fees incurred in connection with the operation of the Building
Complex.
Expressly excluded from Operating Expenses are the following
items:
5.1.1.11.1. Replacement of capital investment items
(except as provided above);
5.1.1.11.2. Advertising and leasing commissions;
5.1.1.11.3. Repairs and restoration paid for by the
proceeds of any insurance policies;
5.1.1.11.4. Principal, interest, and other costs
directly related to financing the Building Complex; and
5.1.1.11.5. The cost of special services to tenants
(including Tenant) for which a special charge is collected.
5.1.2. "Lease Year" means a twelve (12) month period commencing
on January I and ending on December 31.
5.1.3. "Tenant's Building Percentage" means Tenant's percentage
of the entire Building as determined by dividing the Rentable Area of the
Leased Premises by the total Rentable Area of the Building, which is 111,823
square feet. For the purposes of this Section, Tenant I s Building Percentage
is 1.87 percent (1.87%). If there is a permanent change in the Rentable Area
of the Building as a result of an addition to the Building, partial
destruction, modification, or similar cause, Landlord shall make appropriate
adjustments in the related computations.
5.2. If the Operating Expenses for any particular Lease Year exceed
the actual Operating Expenses for the 1997 calendar year as adjusted to
ninety-five percent (95%) occupancy (Base Year), Tenant will pay to Landlord,
as Additional Rent, "Tenant's Share" (as defined below) of the difference
between the Operating Expenses for the Lease Year in question and the Base
Year. "Tenant's Share" for a particular Lease Year to be determined by
multiplying any such difference between Operating Expenses for that Lease Year
and the Base Year or pro rata portion thereof, respectively, by Tenant's
Building Percentage. Landlord shall, in advance of each Lease Year, estimate
what Tenant's Share will be for that Lease Year based in part on Landlord's
operating budget for that Lease Year, and Tenant will pay Tenant's Share as so
estimated each month (Monthly Escalation Payments). The Monthly Escalation
Payments will be due and payable at the same time and in the same manner as
the Monthly Rent.
5.3. Landlord shall, within one hundred twenty (120) days after the
end of each Lease Year, provide Tenant with a written statement of the actual
Operating Expenses incurred during such Lease Year for the Building Complex,
such statement to set forth Tenant's Share of such Operating Expenses. Tenant
shall pay Landlord, as Additional Rent, the amount by which Tenant's Share
for that Lease Year exceeds the amount of monthly Escalation Payments made by
Tenant for that Lease Year, such payment to be made within thirty (30) days
after the date of the statement. If Tenant's Share is less than the amount of
Monthly Escalation Payments collected by Landlord for that Lease Year, the
difference is to be applied as a credit to future Monthly Escalation Payments
to become due hereunder. If real estate taxes, utilities, janitorial
services, or any other components of Operating Expenses increase during any
Lease Year, Landlord may revise Monthly Escalation Payments due during that
Lease Year by giving Tenant written notice to that effect, and thereafter
Tenant shall pay, in each of the remaining months of that Lease Year, a sum
equal to the amount of revised difference in Operating Expenses times Tenant's
Building Percentage divided by the number of months remaining in that Lease
Year.
5.4. If, within sixty (60) days following receipt of the operating
Expenses statement, neither party hereto delivers to the other party a notice
referring in reasonable detail to one (1) or more errors in such statement, it
will be conclusively deemed that the information set forth in the statement is
correct. Tenant will, however, be entitled to conduct or require an audit to
be conducted, provided that not more than one (1) such audit may be conducted
during any Lease Year. In no event will payment of Rent ever be contingent
upon the performance of such audit. For purposes of any audit, Tenant or
Tenant's duly authorized representative, at Tenant's sole cost and expense,
will have the right, upon fifteen (15) days' written notice to Landlord, to
inspect Landlord's books and records pertaining to Operating Expenses at the
offices of Landlord during Landlord's ordinary business hours, provided that
the audit must be conducted so as not to interfere with Landlord's business
operations and must be reasonable as to scope and time. Alternatively, at
Landlord's sole discretion, Landlord may provide an audit of such books and
records prepared by a certified public accountant of Landlord's selection,
but at Tenant's expense, and that audit will be deemed to be conclusive for
the purposes of this Lease.
5.5. Tenant's obligation with respect to Additional Rent and the
payment of Tenant's Share will survive the Expiration Date or Termination
Date, and Landlord will have the right to retain the Security Deposit, or no
much thereof as it deems necessary, to secure payment of Tenant's Share for
the final year of the Lease or part thereof during which Tenant was obligated
to pay such expenses. If Tenant occupies the Leased Premises for less than a
full calendar year during the first or last calendar years of the Term,
Tenant's Share for the partial Lease Year will be calculated by
proportionately reducing the Base Year Operating Expenses to reflect the
number of months in the Base Year during which Tenant occupied the Leased
Premises (Adjusted Base Operating Expenses). The Adjusted Base Operating
Expenses will then be compared with the actual Operating Expenses for said
partial Lease Year to determine the amount of any increases or decreases in
the actual Operating Expenses for such partial Lease Year over the Adjusted
Base Operating Expenses. Tenant shall pay Tenant's Share of any such
increases within thirty (30) days following the receipt of a final statement.
ARTICLE 6. SERVICES TO BE PROVIDED BY LANDLORD
6.1. Subject to Articles 5 and 9 of this Lease, Landlord shall pay
for and furnish to Tenant, while Tenant occupies the Leased Premises, the
following services:
6.1.1. Electrical facilities to furnish sufficient power for
lighting in the Leased Premises, typewriters, voice writers, calculating
machines, personal computers, copy machines, and other machines of
similar low electrical consumption, but not including electricity
required for any other item of electrical equipment that singly consumes
more than 0.5 kilowatts at rated capacity or requires a voltage other
than 120 volts single phase. Tenant shall pay to Landlord monthly, as
billed, such charges as may be separately metered (the cost of such
meter and its installation to be borne by Tenant) or as Landlord's
engineer may compute for any electrical service in excess of that stated
above;
6.1.2. Hot, cold, and refrigerated water at those points of
supply provided for general use of all tenants in the Building;
6.1.3. Janitorial service on a five (5) day week basis at no
extra charge pursuant to Exhibit E. Carpet cleaning, except as
provided in normal business services, is to be performed at Tenant's
request and at Tenant's expense;
6.1.4. Air conditioning and heating as reasonably required for
comfortable use and occupancy under ordinary office conditions from 3:00
a.m. to 6:00 p.m., Monday through Friday, and 8:00 a.m. to 1:00 p.m.,
Saturdays, but not on Sundays or any legal holiday or on any holiday
observed from time to time by a majority of the Building tenants;
6.1.5. Replacement of all standard fluorescent bulbs in all
areas and all incandescent bulbs in public areas, rest room areas, and
stairwells. Routine maintenance and electric lighting service for all
public areas of the Building Complex in a manner and to the extent
deemed by Landlord to be standard; and
6.1.6. Security for the Building Complex as may be deemed
necessary by Landlord. Landlord will not be liable to Tenant for losses
due to theft, burglary, or damage done by unauthorized persons on the
Building Complex.
6.2. Landlord will not be liable for any loss or damage arising or
alleged to arise in connection with the failure, stoppage, or interruption of
any such service, nor will the same be construed as an eviction of Tenant,
cause an abatement of Rent, entitle Tenant to any reduction in Rent, or
relieve Tenant from the operation of this Lease. Landlord reserves the
services or any of them at such times the events mentioned in Article 10
below, but in the event of any such failure, stoppage, or interruption of
diligence to have the same restored. Neither diminution nor shutting off of
light or air or both, nor any other effect on the Building Complex by any
structure erected or condition now or hereafter existing on lands adjacent to
or near the Building Complex, shall affect this Lease, abate Rent, or
otherwise impose any liability on Landlord.
6.3. Landlord has the right to reduce heating, cooling, or lighting
within the Leased Premises and in the public area in the Building as required
by any mandatory fuel or energy-saving program.
6.4. Unless otherwise provided by Landlord, Tenant shall separately
arrange with the applicable local public authorities or utilities, as the case
may be, for the furnishing of and payment for all telephone and facsimile
services as may be required by Tenant in the use of the Leased Premises.
Tenant shall directly pay for such telephone and facsimile services as may be
required by Tenant in the use of the Leased Premises. Tenant shall directly
pay for such telephone and facsimile services, including the establishment and
connection thereof, at the rates charged for such services by said authority
or utility, and the failure of Tenant to obtain or to continue to receive such
services for any reason whatsoever shall not relieve Tenant of any of its
obligations under this Lease.
ARTICLE 7. REPAIRS AND MAINTENANCE BY LANDLORD
7.1. Landlord shall provide for the cleaning and maintenance of the
public portions of the Building Complex in keeping with the ordinary standard
for similar class office buildings in the Quorum Bent Tree area as a part of
Operating Expenses. unless otherwise expressly stipulated herein, Landlord is
not required to make any improvements or repairs of any kind or character to
the Leased Premises during the Term, except repairs as may be required to the
exterior walls, corridors, windows, roof, and other structural elements and
equipment of the Building Complex, and such additional maintenance as may be
necessary because of damage caused by persons other than Tenant, its agents,
employees, licensees, or invitees.
7.2. Landlord or Landlord's officers, agents, and representatives
(subject to any security regulations imposed by any governmental authority)
will have the right to enter all parts of the Leased Premises at all
reasonable hours upon reasonable advance notice to Tenant, except in cases of
emergency when no notice shall be required, to inspect, clean, make repairs,
alterations, and additions to the Building Complex or the Leased Premises that
Landlord may deem necessary or desirable, to make repairs to adjoining spaces,
to cure any defaults of Tenant hereunder that Landlord elects to cure, to show
the Leased Premises to prospective tenants or purchasers of the Building, and
to provide any service that Landlord is obligated or elects to furnish to
Tenant, and Tenant shall not be entitled to any abatement or reduction of Rent
by reason thereof. Landlord will have the right to enter the Leased Premises
at any time and by any means in the case of an emergency.
ARTICLE 8. REPAIRS AND CARE OF BUILDING COMPLEX BY TENANT
8.1. If the Building, the Building Complex, or any portion thereof,
including,but not limited to, the elevators, boilers, engines, pipes, and
other apparatus, or members or elements of the Building (or any of them) used
for the purpose of climate control of the Building or operating the elevators,
water pipes, drainage pipes, electric lighting, or other equipment of the
Building or the roof or outside walls of the Building and also the Leased
Premises improvements, including, but not limited to, the carpet, wall
covering, doors, and woodwork, become damaged or are destroyed through the
negligence, carelessness, or misuse of Tenant, its servants, agents,
employees, or anyone permitted by Tenant to be in the Building, av through it
or them, then the cost of the necessary repairs, replacements, or alterations
shall be borne by Tenant, who shall forthwith pay the same on demand to
Landlord as Additional Rent. Landlord shall have the exclusive right, but not
the obligation, to make any repairs necessitated by such damage.
8.2. Tenant agrees, at its sole cost and expense, to repair or
replace any damage or injury done to the Building Complex, or any part
thereof, caused by Tenant, Tenant's agents, employees, licenses, or invitees
that Landlord elects not to repair. Tenant shall not injure the Building
Complex or the Leased Premises and shall maintain the Leased Premises in a
clean, attractive condition and in good repair. If Tenant fails to keep the
Leased Premises in such good order, condition, and repair to the satisfaction
of Landlord, Landlord may restore the Leased Premises to such good order and
condition and make such repairs without liability to Tenant for any loss or
damage that may accrue to Tenant's property or business by reason thereof, and
upon completion thereof, Tenant shall pay to Landlord, as Additional Rent,
upon demand, the cost of restoring the Leased Premises to such good order and
condition and of the making of such repairs, plus an additional charge of
fifteen percent (15%) thereof. Tenant shall leave the Leased Premises at
the end of each business day in a reasonably tidy condition for the purpose of
allowing the performance of Landlord's cleaning services. Upon the Expiration
Date or the Termination Date, Tenant shall surrender and deliver up the Leased
Premises to Landlord in the same condition in which it existed at the
Commencement Date, excepting only ordinary wear and tear and damage arising
from any cause not required to be repaired by Tenant. Upon the Expiration
Date or the Termination Date, Landlord shall have the right to re-enter and
take possession of the Leased Premises.
8.3. Tenant shall not provide any janitorial or cleaning services
without Landlord's written consent, and then only subject to supervision by
Landlord, at Tenant's sole responsibility, and by a janitorial or cleaning
contractor or employees at all times satisfactory to Landlord.
ARTICLE 9. TENANT'S EQUIPMENT AND INSTALLATIONS
9.1. If heat-generating machines or equipment, including telephone
equipment, cause the temperature in the Leased Premises, or any part thereof,
to exceed the temperatures the Building's air conditioning system would be
able to maintain in such Leased Premises were it not for such heat generating
equipment, then Landlord reserves the right to install supplementary air
conditioning units in the Leased Premises, and upon demand by Landlord, Tenant
will pay to Landlord the cost thereof, including the cost of installation and
the cost of operation (including water), and maintenance thereof.
9.2. Except for desk or table-mounted typewriters, adding machines,
office calculators, dictation equipment, personal computers, copy machines,
and other similar office equipment, Tenant shall not install within the leased
Premises any fixtures, equipment, facilities, or other improvements without
the specific written consent of Landlord. Tenant shall not, without the
specific written consent of Landlord, install or maintain any apparatus or
device within the Leased Premises that shall increase the usage of electrical
power or water for the Leased Premises to an amount greater than would be
normally required for general office use for space of comparable size in the
Quorum Bent Tree area; and if any such apparatus or device is so installed,
Tenant agrees to furnish Landlord a written agreement to pay for any
additional costs of utilities as the result of said installation.
ARTICLE 10. FORCE MAJEURE
It is understood and agreed with respect to any service to be furnished
or obligation to be performed by Landlord for Tenant that in no event will
Landlord be liable for failure to furnish or perform the same when prevented
from doing so by reason of repair or capital improvement performed at the
Building Complex; or by strike, lockout, breakdown, accident, supply, riots,
Acts of God, or by inability by the exercise of reasonable diligence to obtain
supplies, parts, or employees necessary to furnish such service or meet such
obligation; or by war or other emergency; or by any cause beyond Landlord's
reasonable control; or by any cause due to any act or omission of Tenant or
its agents, employees, licensees, invitees, or any persons claiming by,
through, or under Tenant.
ARTICLE 11. MECHANICS' AND MATERIALMAN'S LIENS
11.1. Tenant will not suffer or permit any mechanic's or
materialman's lien to be filed against the Leased Premises or any portion of
the Building Complex by reason of work, labor, services, or materials supplied
or claimed to have been supplied to Tenant. Nothing herein contained will be
deemed or construed in any way to constitute the consent or request by
Landlord, expressed or implied, by inference or otherwise, for any contractor,
subcontractor, laborer, or materialman to perform any labor or to furnish any
materials or to make any specific improvement, alteration, or repair of or to
the Leased Premises or any portion of the Building Complex, or to give Tenant
any right, power, or authority to contract for, or permit the rendering of,
any services or the furnishing of any materials that could give rise to the
filing of any mechanic's or materialman's lien against the Leased Premises or
any portion of the Building Complex.
11.2. If any such mechanic's or materialman's lien is filed at any
time against the Leased Premises or any portion of the Building Complex as the
result of any act or omission of Tenant, Tenant covenants that it shall,
within twenty (20) days after Tenant receives notice of the claim for lien,
procure the discharge thereof by payment or by giving security or in such
other manner as required or permitted by law and to the satisfaction of
Landlord. If Tenant fails to take such action, Landlord, in addition to any
other right or remedy it may have, may take such action as may be reasonably
necessary to protect its interests. Any amounts paid by Landlord in
connection with such action, all other expenses of Landlord incurred in
connection therewith, including reasonable attorneys' fees, court costs, and
other necessary disbursements must be repaid by Tenant to Landlord on demand.
ARTICLE 12. ARBITRATION
If a dispute arises under Section 5.3 above, or if any dispute relating
to provisions or obligations in this Lease as to which a specific provision
for a reference to arbitration is made herein, the same shall be submitted to
arbitration in accordance with the provisions of applicable state law, if any,
as from time to time amended. Arbitration proceedings, including the
selection of an arbitrator, are to be conducted pursuant to the rules,
regulations, and procedures from time to time in effect as promulgated by the
American Arbitration Association. Prior written notice of application by
either party for arbitration must be given to the ' other at least ten (10)
days before submission of the application to the said Association's office in
the city wherein the Building is situated (or the nearest other city having an
Association office). The arbitrator will hear the parties and their evidence.
The decision of the arbitrator may be entered in the appropriate court of law,
and the parties consent to the jurisdiction of such court and further agree
that any process or notice of motion or other application to the Court or a
Judge thereof may be served outside the State wherein the Building is situated
by registered mail or by personal service, provided a reasonable time for
appearance is allowed. The costs and expenses of each arbitration hereunder
and their apportionment between the parties shall be determined by the
arbitrator in his award or decision. No arbitrable dispute shall be deemed to
have arisen under this Lease (i) prior to the expiration of twenty (20) days
after the date of the giving of written notice by the party asserting the
existence of the dispute, together with a description thereof sufficient for
an understanding thereof, and (ii-) where a Tenant payment (e.g., Operating
Expenses excess under Article 5 hereof) is in dispute, the amount billed by
Landlord having been paid by Tenant. The prevailing party in such arbitration
shall be reimbursed for its expenses, including reasonable attorneys' fees.
ARTICLE 13. INSURANCE
13.1. Landlord shall maintain, as a part of Operating Expenses, fire
and extended coverage insurance on the Building Complex. Such insurance shall
be maintained with an insurance company selected by Landlord and in amounts
desired by Landlord or Landlord's mortgages, and payment for loss is to be
made solely to Landlord subject to the rights of the holder of any mortgage or
deed of trust that may now or hereafter encumber the Building Complex.
13.2. Tenant shall maintain, at Tenant's expense, comprehensive
general liability insurance, contractual liability insurance, and property
damage insurance with respect to the Leased Premises in a form and with an
insurance company acceptable to Landlord in a minimum amount of Two Million
and 00/100 Dollars ($2,000,000.00) combined single limit with respect to any
one occurrence. Tenant shall maintain such insurance at all times during the
Term and shall cause a current and valid certificate of such policy to be
deposited with Landlord. If Tenant fails to have a current and valid
certificate of such policy on deposit with Landlord at all times during the
Term, then Landlord will have the right, but not the obligation, to obtain
such an insurance policy, and Tenant shall pay Landlord the amount of the
premiums applicable to such insurance within ten (10) days after Tenant's
receipt of Landlord's request for payment. Said policy of insurance must name
Landlord and Tenant as the insureds and be non-cancelable with respect to
Landlord except after thirty (30) days' written notice of cancellation from
the insurer to Landlord.
13.3. NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, LANDLORD AND
TENANT EACH HEREBY WAIVES ANY AND ALL RIGHTS OF RECOVERY, CLAIM, ACTION, OR
CAUSE OF ACTION AGAINST THE OTHER, ITS AGENTS, EMPLOYEES, LICENSEES, OR
INVITEES FOR ANY LOSS OR DAMAGE TO OR AT THE LEASED PREMISES OR THE BUILDING
COMPLEX OR TO ANY PERSONAL PROPERTY OF SUCH PARTY THEREIN OR THEREON BY REASON
OF FIRE, THE ELEMENTS, OR ANY OTHER CAUSE THAT COULD BE INSURED AGAINST UNDER
THE TERMS OF THE INSURANCE POLICIES REFERRED TO HEREINABOVE, TO THE EXTENT OF
SUCH INSURANCE, REGARDLESS OF CAUSE OR ORIGIN, INCLUDING THE NEGLIGENCE OR
OMISSION OF THE OTHER PARTY HERETO, ITS AGENTS, EMPLOYEES, LICENSEES, OR
INVITEES. LANDLORD AND TENANT COVENANT THAT NO INSURER SHALL HOLD ANY RIGHT
OF SUBROGATION AGAINST EITHER OF SUCH PARTIES. THIS WAIVER SHALL BE
INEFFECTIVE AGAINST ANY INSURER OF LANDLORD OR TENANT TO THE EXTENT THAT SUCH
WAIVER IS PROHIBITED BY THE LAWS AND INSURANCE REGULATIONS OF THE STATE OF
TEXAS. THE PARTIES HERETO AGREE THAT ANY AND ALL SUCH INSURANCE POLICIES
REQUIRED TO BE CARRIED BY EITHER SHALL BE ENDORSED WITH A SUBROGATION CLAUSE,
SUBSTANTIALLY AS FOLLOWS: "THIS INSURANCE SHALL NOT BE INVALIDATED SHOULD THE
INSURED WAIVE, IN WRITING PRIOR TO A LOSS, ANY AND ALL RIGHT OF RECOVERY
AGAINST ANY PARTY FOR LOSS OCCURRING TO THE PROPERTY DESCRIBED THEREIN," AND
SHALL PROVIDE THAT SUCH PARTY'S INSURER WAIVES ANY RIGHT OF RECOVERY AGAINST
THE OTHER PARTY IN CONNECTION WITH ANY SUCH LOSS OR DAMAGE.
ARTICLE 14. QUIET ENJOYMENT
If Tenant has performed all its obligations under this Lease, including
but not limited to the payment of Rent and all other sums due under this
Lease, Tenant will be entitled peaceably and quietly to hold and enjoy the
Leased Premises for the Term, without hindrance by Landlord, subject to the
terms of this Lease.
ARTICLE 15. ALTERATIONS
15.1. Tenant agrees that it will not make or allow to be made any
alterations, physical additions, or improvements in or to the Leased Premises
without first obtaining the written consent of Landlord in each instance,
which consent may be conditioned, given, or withheld in Landlord's sole
discretion. Tenant shall submit to Landlord plans and specifications of the
proposed alterations, additions, or improvements at the time it requests
Landlord's approval, and Landlord will have a period of not less than sixty
(60) days therefrom in which to review and approve or disapprove the plans and
specifications. Tenant shall pay to Landlord upon demand the reasonable cost
and expense of Landlord in (i) reviewing said plans and specifications, and
(ii) inspecting the alterations, additions, or improvements to determine
whether the same are being performed in accordance with the approved plans and
specifications and all laws and requirements of public authorities, including,
without limitation, the fees of any architect or engineer employed by Landlord
for such purpose. In any instance where Landlord grants such consent and
permits Tenant to use its own contractors, laborers, materialmen, and others
furnishing labor or materials for Tenant's construction (collectively, "Tenant
Is Contractors"), Landlord's consent shall be deemed conditioned upon each of
Tenant's Contractors (i) working in harmony and not interfering with any of
Landlord's contractors, laborers, or materialmen, and (ii) furnishing Landlord
with evidence of acceptable liability insurance, worker's compensation
coverage, and if required by Landlord, completion bonding. If at any time
Tenant's Contractors cause disharmony or interference with Landlord's
contractors, laborers, or materialmen, the consent granted by Landlord to
Tenant may be withdrawn immediately upon written notice from Landlord to
Tenant. Tenant, at its expense, shall obtain all necessary governmental
permits and certificates for the commencement and prosecution of alterations,
additions, or improvements and for final approval thereof upon completion, and
shall cause any alterations, additions, or improvements to be performed in
compliance therewith and with all applicable law and requirements of public
authorities and with all applicable requirements of insurance bodies. All
alterations, additions, or improvements are to be diligently performed in a
good and workmanlike manner, using new materials and equipment at least equal
in quality and class to the better of (i) the original installations of the
Building, or (ii) the then standards for the Building established by Landlord.
Upon the completion of work and upon request by Landlord, Tenant shall provide
Landlord copies of all waivers or releases of lien from each of Tenant's
Contractors. No alterations, modifications, or additions to the Building
Complex or the Leased Premises may be removed by Tenant either during the Term
or upon the Expiration Date or the Termination Date without the express
written approval of Landlord. Tenant will not be entitled to any
reimbursement or compensation resulting from its payment of the Cost of
constructing all or any portion of said improvements or modifications thereto
unless otherwise expressly agreed by Landlord in writing. Tenant agrees
specifically that no vending machine will be installed within the Leased
Premises without the prior written consent of Landlord.
15.2. Landlord's approval of Tenant's plans for work will create no
responsibility or liability on the part of Landlord for their completeness,
design sufficiency, or compliance with the laws, rules, and regulations of
governmental agencies or authorities, including, but not limited to, the
Americans with Disabilities Act. Landlord may, at its option and at Tenant's
expense, require that Landlord's contractors be engaged for any mechanical or
electrical work or other building or leasehold improvement.
15.3. At least five (5) days prior to the commencement of any work
permitted to be done at the Leased Premises by persons requested by Tenant,
Tenant shall notify Landlord of the proposed work and the names and addresses
of Tenant's Contractors. During any such work on the Leased Premises,
Landlord, or its representatives, may go upon and inspect the Leased Premises
at all reasonable times, may post and keep posted thereon building permits,
and may take any further action that Landlord may deem to be proper for the
protection of Landlord's interest in the Building Complex.
ARTICLE 16. FURNITURE, FIXTURES, AND PERSONAL PROPERTY
16.1. Tenant, at its sole cost and expense, may remove its trade
fixtures, office supplies, and movable office furniture and equipment not
attached to the Building Complex or Leased Premises provided:
16.1.1. the removal is made prior to the Expiration Date or the
Termination Date;
16.1.2. Tenant is not in default of any obligation or covenant
under this Lease at the time of the removal; and
16.1.3. Tenant promptly repairs all damage caused by the
removal.
16.2. If Tenant does not remove its trade fixtures, office supplies,
and movable furniture and equipment as hereinabove provided prior to the
Expiration Date or the Termination Date (unless prior arrangements have been
made with Landlord and Landlord has agreed in writing to permit Tenant to
leave such items in the Leased Premises for an agreed period) , then, in
addition to its other remedies, at law or in equity, Landlord may (after the
Expiration Date or the Termination Date or upon the expiration of any such
agreed period, whichever is applicable) have such items removed and stored at
Tenant's sole cost and expense, and all damage to the Building Complex or the
Leased Premises resulting from said removal is to be repaired at the cost of
Tenant, or Landlord may elect that such items automatically become the
property of Landlord upon the Expiration Date or the Termination Date or the
expiration of any such agreed period, and Tenant will have no further rights
with respect to such property or to reimbursement for such property. All
other property in the Leased Premises, any alterations, or additions to the
Leased Premises (.including wall-to-wall carpeting, paneling, wall covering,
and specially constructed or built-in cabinetry or bookcases) , and any other
article attached or affixed to the floor, wall, or ceiling of the Leased
Premises will become the property of Landlord and remain upon and be
surrendered as part of the Leased Premises at the Expiration Date or
Termination Date or at the expiration of any such agreed period regardless of
who paid therefor, and Tenant hereby waives all rights to any payment or
compensation therefor. If, however, Landlord so requests, in writing, Tenant
shall remove, prior to the Expiration Date or the Termination Date, any and
all alterations, additions, fixtures, equipment, and property placed or
installed in the Leased Premises and shall repair any damage caused by such
removal.
16.3. All fixtures, trade fixtures, and personal property belonging
to Tenant or any other person and that is now or hereafter located in the
Leased Premises or any other part of the Building Complex are there solely at
the risk of Tenant or such other party. Landlord and its employees and
Landlord's agents and their employees are not to be liable for any damage to
such property or for the theft or misappropriation of such property unless the
damage, theft, or misappropriation is the result of gross negligence by
Landlord or its agents or their employees.
ARTICLE 17. TAXES
Tenant shall pay, prior to delinquency, all business and other taxes,
charges, notes, duties, and assessments levied, and rates or fees imposed,
charged, or assessed against or in respect of Tenant's occupancy of the Leased
Premises or in respect of the personal property, trade fixtures, furnishings,
equipment, and all other personal property of Tenant contained in the Building
Complex, and shall hold Landlord harmless from and against all payment of such
taxes, charges, notes, duties, assessments, rates, and fees, and against all
loss and cost related thereto. Tenant shall cause said fixtures, furnishings,
equipment, and other personal property to be assessed and billed separately
from the real and personal property of Landlord. In the event any or all of
Tenant's fixtures, furnishings, equipment, and other personal property are
assessed and taxed with Landlord's real property, Tenant shall pay to Landlord
Tenant's share of such taxes within ten (10) days after delivery to Tenant by
Landlord of a statement in writing setting forth the amount of such taxes
applicable to Tenant's property.
ARTICLE 18. ASSIGNMENT AND SUBLETTING
18.1. Neither Tenant nor Tenant's legal representatives nor
successors in interest by operation of law or otherwise may assign this Lease
or sublease the Leased Premises or any part thereof or mortgage, pledge, or
hypothecate its leasehold interest therein, or permit the use of a desk or
other space within the Leased Premises by any third party, and any attempt to
do so without the prior express written consent of Landlord will be void and
of no effect, and will constitute an Act of Default. This prohibition against
assigning or subletting is to be construed to include a prohibition against
any assignment or subletting by operation of law. The voluntary or other
surrender of this Lease by Tenant or a mutual cancellation of this Lease will
not cause the leasehold estate so surrendered or canceled to merge with any
subleasehold estate existing under the Lease unless and until Landlord
declares in writing its intention that the estates be merged. The Landlord
may, at its option expressed in writing, treat any such surrender or
cancellation as either (i) a termination of all or any one or more subleases
(if any) existing under the Lease, or (ii.) an assignment to Landlord of
Tenant's rights (but not its obligations) under all or any one or more of such
subleases.
18.2. A sale, transfer, pledge, or hypothecation by Tenant of all or
substantially all of its assets or fifty percent (50%) or more of its stock; a
merger of Tenant with another corporation; or if Tenant is a partnership, the
sale, transfer, pledge, or hypothecation of fifty percent (Sot) or more of the
beneficial ownership interest in Tenant will, in any of the foregoing cases if
done without the prior written consent of Landlord and whether or not
accomplished by one or more related or unrelated transactions, constitute a
prohibited assignment of this Lease. This Section 18.2 will not be applicable
to a corporation if the outstanding voting shares of its capital stock are
listed and traded on a recognized national securities exchange.
18.3. if Tenant desires to assign this Lease or sublease the Leased
Premises or any portion thereof, Tenant shall give Landlord written notice of
such desireto make such assignment or effect such sublease. At the time of
giving such notice, Tenant shall provide Landlord with a copy of the proposed
assignment or sublease document, and such information as Landlord may
reasonably request concerning the proposed sublessee or assignee to assist
Landlord in making an informed judgment regarding the financial condition,
reputation, operation, and general desirability of the proposed sublessee or
assignee. Landlord will then have a period of thirty (30) days following
receipt of such notice within which to notify Tenant in writing of Landlord's
election to:
18.3.1. terminate this Lease as to the space so affected as of
the date specified by Tenant or as of the commencement date of the
proposed assignment or sublease or as of the date of the Landlord's
notice of election, in which event Tenant will be relieved of all further
obligations hereunder as to the Leased Premises or said portion thereof,
after paying all Rent due as of the date of the termination; or
18.3.2. permit Tenant to complete the proposed assignment or
sublease; or
18.3.3. refuse to consent to Tenant's assignment or subleasing
of the LeasedPremises or said portion thereof and to continue this Lease
in full force and effect as to the entire Leased Premises.
If Landlord fails to notify Tenant of its election within said thirty (30) day
period, Landlord will be deemed to have elected option 18.3.3 above. Landlord
and Tenant agree that, in the event of any approved assignment or subletting,
the rights of any such assignee or sublessee of Tenant herein shall be subject
to all of the terms, conditions, and provisions of this Lease, including,
without limitation, the restrictions on use, assignment, and subletting and
the covenant to pay Rent. Landlord may collect Rent direct from such assignee
or sublessee and apply the amount so collected to Rent. No such consent to or
recognition of any such assignment or subletting will constitute a release of
Tenant or any guarantor of Tenant's performance hereunder from further
performance by Tenant or such guarantor of covenants undertaken to be
performed by Tenant herein. Tenant and such guarantor will remain liable and
responsible for all Rent and other obligations herein imposed upon Tenant.
Consent by Landlord to a particular assignment, sublease, or other transaction
will not be deemed a consent to any other or subsequent transaction. if
Landlord consents to any such assignment, sublease, or other transaction,
Tenant shall pay any reasonable attorneys, fees incurred by Landlord in
connection with such transaction. All documents utilized by Tenant to
evidence any subletting or assignment for which Landlord's consent has been
requested, will be subject to prior approval by Landlord or its attorney. If
any Rent payable to Tenant and other consideration paid in connection with the
assignment or subletting by any sublessee, assignee, licensee, or other
transferee exceeds the Rent reserved herein, then Tenant will be bound and
obligated to pay Landlord all such excess Rent and other consideration within
ten (10) days following receipt thereof by Tenant from such sublessee,
assignee, licensee, or other transferee, as the case might be.
18.4. If this Lease is assigned to any person or entity pursuant to
the provisions of the Bankruptcy Code, 11 U.S.C. Section 101 et. seq.
(Bankruptcy Code), any and all monies or other consideration payable or
otherwise to be delivered in connection with such assignment must be paid or
delivered to Landlord, will be and remain the exclusive property of Landlord,
and will not constitute property of Tenant or of the estate of Tenant within
the meaning of the Bankruptcy Code. Any such monies or other consideration not
paid or delivered to Landlord will be held in trust for the benefit of
Landlord and will be promptly paid or delivered to Landlord. Any person or
entity to whom this Lease is so assigned will be deemed, without further act
or deed, to have assumed all of the obligations arising under this Lease as of
the date of such assignment. Any such assignee shall, upon demand, execute and
deliver to Landlord an instrument confirming such assumption. Tenant will not
have the right to sublet or assign all or any part of this Lease while any
default exists under this Lease.
18.5. Notwithstanding the foregoing provisions, Landlord's consents
under this Article 18 will not be unreasonably withheld or untimely delayed.
ARTICLE 19. FIRE AND CASUALTY
19.1. If the Leased Premises or any part thereof are at any time
damaged by fire or other casualty, Tenant shall give prompt written notice
thereof to Landlord. If the Building Complex is at any time damaged by fire
or other casualty and any of the following applies: (i) substantial alteration
or reconstruction of the Building Complex is, in Landlord's reasonable
opinion, required (whether or not the Leased Premises shall have been damaged
by such fire or other casualty), (ii) any mortgagee under a mortgage or deed
of trust covering the Building Complex requires that the insurance proceeds
payable as a result of said fire or other casualty be used to retire the
mortgage debt, (iii) the Building Complex is damaged as a result of a risk
that is not covered by Landlord's insurance, or (iv) the Leased Premises is
materially damaged during the last year of the Term, then Landlord may, at its
option, terminate this Lease by notifying Tenant in writing of such
termination within thirty (30) days after the date of such damage or casualty,
in which event the Rent will be abated as of the date of such notice. In
cases of less than such substantial damage and upon receipt of the insurance
proceeds for the damage, Landlord shall restore and repair the Leased
Premises.
19.2. If Landlord elects not to terminate this Lease as herein
provided and if repairs have not been commenced within sixty (60) days from
the date of damage and thereafter completed within six (6) months (excepting
that Landlord shall not be responsible for delays brought about by Force
majeure, as described in Article 10 hereof) , this Lease may be immediately
terminated by Tenant by serving written notice upon Landlord.
19.3. To the extent of the insurance proceeds available to Landlord
therefor, Landlord shall repair and restore the Building Complex and/or the
Leased Premises to substantially the same condition in which they were
immediately prior to the fire or other casualty, except that Landlord will
have no obligation to rebuild, repair, or replace any part of Tenant's
furniture, fixtures, furnishings, or equipment or any alterations, additions,
or improvements made by Tenant to the Leased Premises pursuant to Article 15
of this Lease. Landlord's repair or restoration work need not exceed the
scope of work done in originally constructing the Building Complex and the
Leased Premises. Landlord will not be liable for any inconvenience,
annoyance, or injury done to the business of Tenant resulting in any way from
such damage or the repair thereof and Tenant's obligations to pay Rent will
continue unabated, except Landlord shall allow Tenant an equitable reduction
of Rent during the time and to the extent the Leased Premises are unfit for
occupancy unless the unfitness results from the fault or negligence of Tenant
or the other parties described below in Section 19.4.
19.4. If the Leased Premises or the Building Complex are totally
destroyed or partially damaged by fire or other casualty resulting from the
fault or negligence of Tenant, or its agents, employees, licensees, or
invitees, such damage shall be repaired by and at the expense of Tenant (to
the extent that such destruction or damage is not covered by the fire and
extended coverage insurance carried by Landlord as provided herein), under the
direction and supervision of Landlord, and Rent shall continue without
abatement.
ARTICLE 20. CONDEMNATION
If any material part of the Leased Premises or the Building Complex is
taken by exercise of the power of eminent domain or by conveyance in lieu
thereof during the Term, Landlord may elect to terminate this Lease upon
written notice to Tenant within thirty (30) days after the date of such taking
or transfer in lieu thereof or to continue the same in effect. All
compensation awarded for any taking (or the proceeds of private sale in lieu
thereof) of the Leased Premises, Building, or Building Complex will be the
property of Landlord, and Tenant hereby assigns its interest in any such
award to Landlord; provided, however, Landlord will have no interest in any
award made to Tenant for the taking of Tenant's fixtures and other personal
property or moving expenses if a separate award for such items is made to
Tenant. if this Lease is terminated as a result of any such exercise of the
power of eminent domain, Rent will be payable up to the date that possession
is taken by the condemning authority; Landlord shall refund to Tenant any
prepaid unaccrued Rent, less any sum then owing by Tenant to Landlord; and
Tenant will have no claim against Landlord for the value of any unexpired
portion of the Term. If such condemnation does not result in the termination
of this Lease, the Rent thereafter to be paid will be proportionately reduced
as to the apace affected.
ARTICLE 21. HOLD HARMLESS
21.1. TENANT AGREES TO DEFEND, WITH COUNSEL APPROVED BY LANDLORD,
ALL ACTIONS AGAINST LANDLORD, ANY PARTNER, TRUSTEE, STOCKHOLDER, OFFICER,
DIRECTOR, EMPLOYEE, AGENT, OR BENEFICIARY OF LANDLORD, HOLDERS OF MORTGAGES
SECURED BY THE LEASED PREMISES OR THE BUILDING COMPLEX, AND ANY OTHER PARTY
HAVING AN INTEREST THEREIN (INDEMNIFIED PARTIES) WITH RESPECT TO, AND AGREES
TO PAY, PROTECT, INDEMNIFY, AND SAVE HARMLESS, TO THE EXTENT PERMITTED BY
LAW, ALL INDEMNIFIED PARTIES FROM AND AGAINST ANY AND ALL LIABILITIES, LOSSES,
DAMAGES, COSTS, EXPENSES (INCLUDING REASONABLE ATTORNEYS' FEES AND EXPENSES),
CAUSES OF ACTION, SUITS, CLAIMS, DEMANDS, AND JUDGMENTS OF ANY NATURE TO WHICH
ANY INDEMNIFIED PARTY IS SUBJECT BECAUSE OF ITS ESTATE OR INTEREST IN THE
LEASED PREMISES OR THE BUILDING COMPLEX ARISING FROM (i) INJURY TO OR DEATH OF
ANY PERSON, OR DAMAGE TO OR LOSS OF PROPERTY, TO THE EXTENT CAUSED BY OR
ATTRIBUTABLE TO TENANT, OCCURRING ON THE LEASED PREMISES, THE BUILDING
COMPLEX, OR ADJOINING SIDEWALKS, STREETS, OR WAYS, OR, IN ANY OF THE FOREGOING
CASES, CONNECTED WITH THE USE, CONDITION, OR OCCUPANCY OF THE LEASED PREMISES,
THE BUILDING COMPLEX SIDEWALKS, STREETS, OR WAYS UNLESS CAUSED BY THE GROSS
NEGLIGENCE OF LANDLORD OR ITS SERVANTS OR AGENTS, (ii) VIOLATION OF THIS LEASE
BY OR ATTRIBUTABLE TO TENANT, AND (iii) ANY ACT, FAULT, OMISSION, OR OTHER
MISCONDUCT OF TENANT OR ITS AGENTS, CONTRACTORS, LICENSES, SUBLESSEES, OR
INVITEES. TENANT AGREES TO USE AND OCCUPY THE LEASED PREMISES AIM OTHER
FACILITIESOF THE BUILDING COMPLEX AT ITS OWN RISK, AND HEREBY RELEASES THE
INDEMNIFIED PARTIES FROM ANY AND ALL CLAIMS FOR ANY DAMAGE OR INJURY TO THE
FULLEST EXTENT PERMITTED BY LAW.
21.2. Tenant agrees that Landlord WILL not be responsible or liable
to Tenant, its agents, employees, licensees, or invitees for fatal or
non-fatal bodily injury or property damage occasioned by the acts or omissions
of any other tenant, of the Building Complex or such other tenant's agents,
employees, licensees, or invitees.
ARTICLE 22. DEFAULT BY TENANT
22.1. The term "Act of Default" refers to the occurrence of any one
(1) or more of the following:
22.1.1. Failure of Tenant to pay, within five (5) days
following the due date, any sum required to be paid under this Lease
(Monetary Default);
22.1.2. Failure of Tenant to have performed or complied with
any of Tenant's obligations, covenants, or agreements (other than a
Monetary Default) under the expiration of ten (10) days after written
notice of the obligation, covenant, or agreement in default has been
given in the manner required under this Lease.
22.1.3. If Tenant or any guarantor of Tenant's obligations
under this Lease (Guarantor) admits in writing that it cannot meet its
obligations as they become due or is declared insolvent according to any
law; if assignment of Tenant's or Guarantor's property is made for the
benefit of creditors; if a receiver or trustee is appointed for Tenant or
Guarantor or its property; if the interest of Tenant or Guarantor under
this Lease is levied on under execution or other legal process; if any
petition is filed by or against Tenant or Guarantor under bankruptcy laws
or to delay, reduce, or modify Tenant's or Guarantor's debts or
obligations; or if any petition is filed or other action taken to
reorganize or modify Tenant's or Guarantor's capital structure (if Tenant
or Guarantor is a corporation or other entity. No such levy, execution,
legal process, or petition filed against Tenant or Guarantor will
constitute a breach of this Lease it Tenant or Guarantor vigorously
contests the same by appropriate proceedings and removes or vacates the
same within sixty (60) days from the date of its creation, service, or
filing;
22.1.4. Whether or not the Tenant is in Monetary Default, the
abandonment of the Leased Premises, the vacating of the Leased Premises
for ten (10) consecutive days, or vacating the Leased Premises by the
removal of a substantial part of Tenant's furniture and fixtures;
22.1.5. The discovery by Landlord that any financial statement
given by Tenant, by any of its assignees, subtenants, or
successors-in-interest, or by any Guarantor was materially false; or
22.1.6. If Tenant or any Guarantor shall die, cease to exist as
a corporation or partnership, be otherwise dissolved or liquidated,
become insolvent, or make a transfer in fraud of creditors.
22.2. While any Act of Default remains uncured Landlord, at its
option, may pursue one or more of the following remedies without notice or
demand and in addition to all other rights and remedies provided for in law or
in equity:
22.2.1. Terminate this Lease, in which event Tenant shall
immediately surrender possession of the Leased Premises to Landlord;
22.2.2. Enter upon or take possession of the Leased Premises
and its contents and expel or remove Tenant, any other occupant, and any
contents therefrom with or without having terminated the Lease and
without being liable for prosecution of any claim of damages therefor;
and
22.2.3. Upon delinquency in the payment of any part of Rent,
change or alter door locks and other security devices at the Leased
Premises consistent with the requirements of applicable law.
22.3. If Landlord exercises any one or more remedies hereunder
granted or otherwise available, it shall not be deemed to be an acceptance by
Landlord of Tenant's surrender of the Leased Premises, either by agreement or
by operation of law, and it is understood that such surrender can be effected
only by the written agreement of Landlord and Tenant. No alteration of locks
or other security devices and no removal or other exercise of dominion by
Landlord over the property of Tenant or others in the Leased Premises is to be
deemed unauthorized or constitute a conversion, Tenant hereby consenting to
the aforesaid exercise of dominion over Tenant's property within the Leased
Premises after any Act of Default. All claims for damages by reason of any
such re-entry, repossession, and alteration Of locks or other security
devices, or by reason of any one or more of such acts, are hereby waived as
are all claims for damages by reason of any distress warrant, forcible
detainer proceedings, sequestration proceedings, or other legal or equitable
process. Tenant agrees that any re-entry by Landlord may be effected as
permitted in a judgment obtained in legal proceedings or without the necessity
of legal proceedings, as Landlord may elect, and Landlord will not be liable
in trespass or otherwise for any re-entry.
If Landlord elects to regain possession of the Leased Premises by a
summary proceeding or forcible detainer proceedings, Tenant hereby
specifically waives, to the extent permitted by law, any statutory notice that
may be required prior to such proceeding and agrees that Landlord's execution
of this Lease is in part consideration for this waiver.
22.4. If Landlord elects to terminate Tenant's right of possession
under this Lease, Landlord may without further notice repossess the Leased
Premises, and Tenant will be liable as provided below in this subsection. If
Tenant's right of possession under this Lease is terminated in accordance with
the provisions of this subsection, Tenant will remain liable to Landlord for
damages in an amount equal to (i) the Rent and other sums that would have
been owed under this Lease by Tenant for the balance of the Term had Tenant's
right of possession under this Lease not been terminated, less the net
proceeds, if any, of any reletting of the Leased Premises by Landlord after
such termination after deducting all of Landlord's expenses in connection with
such reletting, including without limitation, the expenses enumerated in
Section 21.5 below, and (ii) the unamortized portion of the cost of Landlord's
Work, amortized on a straight-line basis over the initial term of this Lease.
Landlord will be entitled to collect such damages from Tenant monthly on the
days on which the Rent and other amounts would have been payable hereunder if
this Lease had not been terminated, and Landlord will be entitled to receive
the same from Tenant on each such day.
22.5. Alternatively, at the option of Landlord, if this Lease is
terminated, Landlord will be entitled to ((i) accelerate and collect from
Tenant the Rent due under this Lease from the date on which the Act of Default
occurred through the date that would otherwise have been the Expiration Date
of this Lease if and when the Act of Default is a Monetary Default under
Article 4, a failure to obtain the required insurance coverage under Article
13, or a violation of Section 3.1 or Article 18; or, at Landlord's election
(ii) recover forthwith against Tenant as damages for loss of the bargain and
not as a penalty (and Tenant will be liable for and shall pay to Landlord) the
sum of all Rent and other indebtedness accrued to the date of such
termination, plus, as damages for loss of the bargain and not as a penalty, an
amount equal to the then-present value of the Rent and any and all other sums
reserved under this Lease for the remaining portion of the Term (had such Term
not been terminated by Landlord prior to the Expiration Date), plus all costs
of reletting enumerated in Section 22.6 below, less the present value of the
then-fair rental value of the Leased Premises for such period. The parties
hereby stipulate that such fair rental value will in no event be deemed to
exceed sixty percent (60*) of the then-present value of the Rent reserved for
such period. For computations of present value, the parties agree to use a
six percent (6%) per annum interest figure. The foregoing, together with any
other damages incurred by Landlord in connection with the termination of this
Lease, will accrue interest at the highest applicable non-usurious rate
permitted by applicable law.
22.6. Should Landlord elect not to terminate this Lease, Landlord
may, without notice or demand, enter upon the Leased Premises or any part
thereof and take absolute possession of the same, and, at Landlord's option,
Landlord may relet the Leased Premises or any part thereof upon such terms and
such rents as Landlord may reasonably elect (which may include concessions of
free rent and alteration of the Leased Premises). Landlord shall use
reasonable efforts but will not be obligated to relet the Leased Premises, and
under no circumstances will Landlord be required to lease the Leased Premises
below the then-current market rental rates being obtained for similar office
buildings in a similar area or to lease the same to any Tenant not
creditworthy or otherwise unacceptable to Landlord and Landlord will in no way
be responsible or liable for any failure to relet the Leased Premises,
or any part thereof, or for any failure to collect any rent due upon such
reletting. If Landlord elects to so relet, then any rent received by Landlord
from such reletting will be applied first to the payment of any indebtedness
other than Rent due hereunder from Tenant to Landlord; second, to payment of
any reasonable cost of such reletting, including, without limitation, all
repossession costs, legal expenses, attorneys' fees, concessions, moving
and/or storage costs, alteration, remodeling and repair costs, leasing
commissions, and other expenses of preparation for such reletting; and third,
to the payment of Rent due and unpaid hereunder, and Tenant shall satisfy and
pay any deficiency between the rents so collected from the Rents reserved
herein upon demand therefor from time to time, and the unamortized portion of
the cost of the Landlord's Work, amortized on a straight-line basis over the
initial term of this Lease. In no event will Tenant be entitled to any excess
of any rent obtained by reletting over and above the Rent herein reserved.
22.7. Tenant further agrees that Landlord may file suit from time to
time to recover any sums due under the terms of this Lease and that no
recovery of any portion due Landlord hereunder will be a defense to any
subsequent action brought for any amount not theretofore reduced to judgment
in favor of Landlord. Reletting the Leased Premises will not be construed as
an election on the part of Landlord to terminate this Lease, and
notwithstanding any such reletting without termination, Landlord may at any
time thereafter elect to terminate this Lease for such previous breach,
whereupon the foregoing provisions with respect to termination will apply.
Nothing herein will be deemed to require Landlord to await the date whereon
this Lease or the Term hereof would have expired by its terms had there been
no such default by Tenant, or no such termination, as the case may be. Each
right and remedy provided for in this Lease will be cumulative and in addition
to every other right or remedy provided for in this Lease or now or hereafter
existing at law or in equity or by statute or otherwise, including, but not
limited to, suits for injunctive relief and specific performance. The
exercise or beginning of the exercise by landlord of any one or more of the
rights or remedies provided for in this Lease or now or hereafter existing at
law or in equity, or by statute or otherwise shall not preclude the
simultaneous or later exercise by Landlord of any or all other rights or
remedies provided for in this Lease or now or hereafter existing at law or
in equity or by statute or otherwise. All such rights and remedies are
cumulative and non-exclusive. All costs incurred by Landlord in connection
with collecting any Rent or other amounts and damages owing by Tenant pursuant
to the provisions of this Lease, or to enforce any provision of this Lease,
including reasonable attorneys, fees from the date such matter is turned over
to an attorney, whether or not one or more actions are commenced by Landlord,
will also be recoverable by Landlord from Tenant.
22.8. If Tenant fails to make any payment or cure any default under
this Lease within the time herein permitted, Landlord, without being under any
obligation to do so and without thereby waiving such default, may make such
payment and remedy such other default for the account of Tenant (and enter the
Leased Premises for such purpose), and thereupon, Tenant will be obligated and
hereby agrees to pay Landlord, upon demand, all reasonable costs, expenses,
and disbursements, plus fifteen percent (15%) overhead cost incurred by
Landlord in connection therewith.
22.9. In addition to Landlord's rights set forth above, if Tenant
fails to pay Rent or any other amount owing hereunder within the time period
set forth in Section 22.1.1 above more than two (2) times during any calendar
year during the Term, or any extension thereof, then upon the occurrence of
the third or any subsequent default in the payment of monies during said
calendar year, Landlord may require that Tenant, as a condition precedent to
curing such default, pay to Landlord, by check or money order, in advance, the
Rent and Landlord's estimate of all other amounts that will become due and
owing hereunder by Tenant for a period of two (2) months. All such amounts
shall be paid by Tenant within thirty (30) days after notice from Landlord
demanding the same. All monies so paid are to be retained by Landlord,
without interest, for the balance of the Term and any extension thereof, and
are to be applied by Landlord to the last due amounts owing hereunder by
Tenant. if, however, Landlord's estimate of the Rent and other amounts for
which Tenant is responsible hereunder are inaccurate, then when such error is
discovered, Landlord shall pay to Tenant, or Tenant shall pay to Landlord,
within thirty (30) days after written notice thereof, the excess or
deficiency, as the case may be, that is required to reconcile the amount on
deposit with Landlord with the actual amounts for which Tenant is responsible.
22.10. Nothing contained in this section will limit or prejudice the
right of Landlord to prove and obtain as liquidated damages in any bankruptcy,
insolvency, receivership, reorganization, or dissolution proceeding, an amount
equal to the maximum allowed by any statute or rule of law governing such a
proceeding and in effect at the time when such damages are to be proved,
whether or not such amount be equal to or greater or less than the amounts
recoverable, either as damages or Rent, referred to in any of the preceding
provisions of this Section. Notwithstanding anything contained in this
Section to the contrary, any such proceeding or action involving bankruptcy,
insolvency, reorganization, arrangement, assignment for the benefit of
creditors, or appointment of a receiver or trustee, as set forth above, shall
be considered to be an Act of Default only when such proceeding, action, or
remedy will be taken or brought by or against the then holder of the leasehold
estate under this Lease or the Guarantor.
22.11. In the event of any Act of Default or breach by Tenant, or
threatened or anticipatory breach or default, Tenant will also be liable and
shall pay to Landlord, in addition to any sums provided to be paid above,
brokers' fees incurred by Landlord in connection with reletting the whole or
any part of the Leased Premises; the coats of removing and storing Tenant's or
other occupant's property; the costs of repairing, altering, remodeling, or
otherwise putting the Leased Premises into condition acceptable to a new
tenant or tenants; and all reasonable expenses incurred by Landlord in
enforcing or defending Landlord's rights and remedies, including reasonable
attorneys, fees, whether suit was actually filed or not.
22.12. in the event of termination or repossession of the Leased
Premises for an Act of Default, Landlord will have no obligation to relet or
attempt to relet the Leased Premises or any portion thereof, or to collect
rental after reletting, and in the event of reletting, Landlord may relet the
whole or any portion of the Leased Premises for any period to any tenant at
any rental and for any use or purpose.
22.13. Landlord is entitled to accept, receive, in check or money
order, and deposit any payment made by Tenant for any reason or purpose or in
any amount whatsoever, and apply them at Landlord's option to any obligation
of Tenant, and such amounts will not constitute payment of any amount owed,
except that to which Landlord has applied them. No endorsement or statement
on any check or letter of Tenant will be deemed an accord and satisfaction or
recognized for any purpose whatsoever. The acceptance of any such check or
payment will be without prejudice to Landlord's rights to recover any and all
amounts owed by Tenant hereunder and will not be deemed to cure any other
default nor prejudice Landlord's rights to pursue any other available remedy.
22.14. In the event of any default by Landlord, Tenant's exclusive
remedy will be an action for damages, Tenant hereby waiving the benefit of any
laws granting it a lien upon the property of Landlord and upon Rent due
Landlord. Prior to any such action for damages, Tenant must give Landlord
written notice specifying such default with particularity, and Landlord will
thereupon have thirty (30) days (plus such additional reasonable period as may
be required in the exercise by Landlord of due diligence) in which to cure any
such default. Unless and until Landlord fails to cure any default after such
notice, Tenant shall not have any remedy or cause of action by reason thereof.
All obligations of Landlord hereunder are to be construed as covenants, not
conditions.
22.15. In addition to and without limiting the foregoing, in the
event of any abandonment of the Leased Premises by Tenant, if Landlord does
not elect to declare this Lease terminated, then Tenant shall remain
obligated, notwithstanding any such discontinuance or cessation of operations,
to perform all covenants and agreements under this Lease, including, without
limitation, payment of all Base Rent and all Additional Rent and other sums
provided for herein.
ARTICLE 23. LIEN FOR RENT AND SECURITY AGREEMENT
To secure the payment of all Rent due and to become due under this lease
and the faithful performance of all the other covenants of this Lease required
to be performed by Tenant, Tenant grants to Landlord an express contract lien
on and first security interest in and to all property, equipment, machinery,
trade fixtures, chattels, and merchandise that may be placed in the Leased
Premises and all proceeds of any insurance that may accrue to Tenant by
reason of damage to or destruction of any such property (such property,
equipment, trade fixtures, chattels, merchandise, and insurance proceeds being
collectively called the "Tenant's Property"), and agrees that this Lease
constitutes a security agreement with respect to the Tenant's Property. The
lien and security interest granted in this Article are given in addition to
and are cumulative to any statutory liens. Tenant agrees to execute from time
to time at the request of Landlord UCC-1 Financing Statements referencing this
security agreement in a form satisfactory to Landlord, and to file originals
of such statements with the recording offices where (i) the Leased Premises
are located, and (ii) Tenant maintains its principal business office or
residence, or wherever else such statements would ordinarily be filed to
perfect Landlord's security interest in the Tenant's Property under the laws
of the State where the Leased Premises are located. in addition to all other
rights of Landlord under this Lease, upon Tenant's default Landlord will have
all of the remedies of a secured party with respect to the Tenant's Property.
The contract lien and security interest granted to Landlord in this Article 23
and all statutory liens covering the Tenant's Property are sometimes in this
Article 23 called the "Landlord's Liens." Notwithstanding anything to the
contrary in this Article 23, the Landlord's Liens will be subordinate to a
properly perfected purchase money security interest created under a security
agreement executed by the Tenant and held by a secured party not related to
the Tenant.
ARTICLE 24. RIGHT TO RELOCATE
Notwithstanding anything in this Lease to the contrary, Landlord retains
the right and power to relocate Tenant upon thirty (30) days' written notice
within the Building in such space that is comparable in size and location and
suited to Tenant's use, such right and power to be exercised reasonably.
Landlord will not be liable or responsible for any claims, damages, or
liabilities in connection with or occasioned by such relocation. Landlord's
reasonable exercise of such right and power will include, but not be limited
to, a relocation to consolidate the Rentable Area occupied in order to provide
Landlord's services more efficiently or a relocation to provide contiguous
vacant space for a prospective tenant. If Landlord exercises the right to
relocate Tenant under this Article 24, the substituted premises will be the
"Leased Premises" under this Lease with respect to the remaining portion of
the Term, and a new amended Exhibit B showing the new Leased Premises will be
substituted for the original Exhibit B attached hereto. Landlord agrees to
pay Tenant's expenses to move its furniture, fixtures, and equipment to such
substituted Leased Premises, PLUS the cost to reprint stationary and other
Printed matter in such amounts as are on hand at the time of relocation and
the costs to pull cable and phone wiring for the relocation space.
ARTICLE 25. ATTORNEYS' FEES
If Landlord or Tenant, because of a breach by the other, places the
enforcement of any provision of this Lease, or the collection of any Rent due
or to become due hereunder, or recovery of the possession of the Leased
Premises, in the hands of any attorney, or file suit based on this Lease, the
prevailing party will be entitled to recover its reasonable attorneys' fees
and all court costs, if any, from the non-prevailing party.
ARTICLE 26. NON-WAIVER
Neither acceptance of any payment by Landlord from Tenant nor failure by
Landlord to complain of any action, non-action, or default by Tenant will
constitute a waiver of any of Landlord's rights hereunder. Time is of the
essence with respect to the performance of every obligation of Tenant under
this Lease in which time of performance is a factor. Waiver by Landlord or
Tenant of any right or remedy arising in connection with any default by the
other will not constitute a waiver of such right or remedy or any other right
or remedy arising in connection with either a subsequent default of the same
obligation or any other default. No right or remedy of Landlord or Tenant
hereunder or covenant, duty, or obligation of Landlord or Tenant hereunder
will be deemed waived unless the waiver is in writing and signed by the
waiving party or its duly authorized agent.
ARTICLE 27. RULES AND REGULATIONS
Reasonable rules and regulations applying to all tenants in the Building
Complex for the safety, care, and cleanliness of the Building Complex and the
preservation of good order are made a part of and attached to this Lease as
Exhibit D (and such rules and regulations together with all amendments and
additions that may be adopted by Landlord are collectively called the "Rules
and Regulations"). Tenant agrees to comply with all of the Rules and
Regulations. Landlord will have the right at all times to change the Rules
and Regulations and to amend them in any reasonable manner that Landlord deems
advisable, all of which changes and amendments are to be sent by Landlord to
Tenant in writing and thereafter are to be carried out and observed by Tenant.
Landlord will not have any liability to Tenant for any failure of any other
tenants of the Building Complex to comply with the Rules and Regulations.
ARTICLE 28. ASSIGNMENT BY LANDLORD
Landlord will have the right to transfer or assign, in whole or in part,
all its rights and obligations under this Lease and in the Leased Premises and
the Building Complex. Upon any such transfer or assignment, no liability or
obligation under this Lease will accrue or be charged to the transferring or
assigning Landlord after the transfer or assignment.
ARTICLE 29. LIABILITY OF LANDLORD
It is expressly understood and agreed that the obligations of Landlord
under this Lease are to be binding upon Landlord and its successors and
assigns and any future owner of the Building Complex only with respect to
events occurring during its and their respective ownership of the Building
Complex. In addition, Tenant agrees to look solely to Landlord's interest in
the Building Complex for recovery of any judgment against Landlord arising in
connection with this Lease, it being agreed that neither Landlord nor any
successor or assign of Landlord nor any future owner of the Building complex,
nor any partner, shareholder, or officer of any of the foregoing will ever
have personal, partnership, or corporate liability for any such judgment.
ARTICLE 30. SUBORDINATION AND ATTORNMENT
This Lease, at Landlord's option, will be subordinate to any mortgage,
ground lease, or declaration of covenants regarding maintenance and use of any
areas contained in any portion of the Building (now or hereafter affecting
title to the Building) , and to any and all advances made under any mortgage
and to all renewals, modifications, consolidations, replacements, and
extensions thereof. Tenant agrees, with respect to any of the foregoing
documents, that no documentation other than this Lease will be required to
evidence such subordination. If any holder of a mortgage elects for this
Lease to be superior to the lien of its mortgage and gives written notice
thereof to Tenant, then this Lease will automatically be deemed prior to such
mortgage whether this Lease is dated earlier or later than the date the
mortgage is executed or recorded. Tenant agrees to execute such documents as
may be further required to evidence such subordination or to make this Lease
prior to the lien of any mortgage or deed of trust, as the case may be, and
Tenant does hereby make, constitute, and irrevocably appoint Landlord as
Tenant's attorney-in-fact and in Tenant's name, place, and stead, to execute
such documents if Tenant fails to do so within five (5) days after written
demand. This power of attorney is coupled with an interest. Tenant hereby
attorns to all successor owners of the Building, whether or not such ownership
is acquired as a result of a sale through foreclosure of a deed of trust or
mortgage, or otherwise. Notwithstanding the foregoing, Tenant will be
obligated to subordinate its leasehold interest to any mortgage, deed of
trust, ground lease, or declaration of covenants now or hereafter placed upon
the Building only if the holder of such mortgage or deed of trust or the
landlord under such ground lease or the declarant under such declaration of
covenants will grant to tenant a non-disturbance agreement, using the form of
document then being employed by such holder, landlord, or declarant for such
purposes, which will provide that Tenant, notwithstanding any default of
Landlord hereunder, will have the right to remain in possession of the Leased
Premises described herein in accordance with the terms and provisions of this
Lease for so long as Tenant is not in default under this Lease. Additionally,
upon not less than five (5) days, prior written request by Landlord, Tenant
shall sign and deliver to Landlord a certificate stating whether this Lease is
in full force and effect; whether any amendments or modification exist;
whether any Monthly Rent has been prepaid and, if so, how much; whether there
are any defaults hereunder; and such other information and agreements as may
be reasonably requested, it being intended that any such statement delivered
pursuant to this Article may be relied upon by Landlord and by any prospective
purchaser of all or any portion of Landlord's interest herein, or a holder or
prospective holder of any mortgage encumbering the Building. Tenant's failure
to deliver such statement within such time will constitute an Act of Default
and will conclusively be deemed to be an admission by Tenant of the matters
set forth in the request for an estoppel certificate.
ARTICLE 31. HOLDING OVER
If Tenant, or any party claiming under Tenant, retains possession of the
Leased Premises after the Expiration Date or Termination Date, such possession
will be that of a Holdover Tenant and an unlawful detainer. No tenancy or
interest shall result from such possession, and such parties shall be subject
to immediate eviction and removal. Tenant or any such party shall pay
Landlord, as rent for the period of such holdover, an amount computed on the
same basis as the Rent, except that the computations are to cover the holdover
period, and the amount of rent payable to Landlord for the holdover period
will be doublethe amount resulting from those computations. Tenant shall also
be liable for any and all damages sustained by Landlord as a result of such
holdover. Tenant shall vacate the Leased Premises and deliver same to Landlord
immediately upon Tenant's receipt of notice from Landlord to so vacate. The
Rent during such holdover period shall be payable to Landlord on demand. No
holding over by Tenant, whether with or without consent of Landlord, shall
operate to extend this Lease.
ARTICLE 32. SIGNS
No sign, symbol, or identifying marks shall be put upon the Building
Complex, Building, in the halls, elevators, staircases, entrances, parking
areas, or upon the doors or walls, without the prior written approval of
Landlord. Should such approval ever be granted, all signs or lettering shall
conform in all respects to the sign and/or lettering criteria established by
Landlord. Landlord, at Landlord's sole cost and expense, reserves the right
to change the door plaques as Landlord reasonably deems desirable.
ARTICLE 33. HAZARDOUS SUBSTANCES
33.1. With respect to Tenant's use of the Building Complex, Tenant
shall at all times, at its own cost and expense, comply with all federal,
state, and local laws, ordinances, regulations, and standards relating to the
use, analysis, production, storage, sale, disposal, or transportation of any
hazardous materials (Hazardous Substance Laws), including oil or petroleum
products or their derivatives, solvents, PCBIS, explosive substances,
asbestos, radioactive materials or waste, and any other toxic, ignitable,
reactive, corrosive, contaminating, or Pollution materials (Hazardous
Substances) that are now or in the future subject to any governmental
regulations.
33.2. Tenant shall not generate, store, or dispose of any Hazardous
Substances in or on the Leased Premises or the Building Complex. Except in
emergencies or as otherwise required by law, Tenant shall not take any
remedial action in response to the presence or release of any Hazardous
Substances on or about the Building Complex without first giving written
notice of the same to Landlord and receiving Landlord's written approval.
Tenant shall not enter into any settlement agreement, consent decree, or other
compromise with respect to any claims relating to any Hazardous Substances in
any way connected with the Building Complex without first notifying Landlord
of Tenant's intention to do so and affording Landlord the opportunity to
participate in any such proceedings.
33.3. All costs and expenses incurred by Landlord in connection with
any environmental audit shall be paid by Landlord (and may be included in
Operating Expenses), except that if any such environmental audit shows that
Tenant has failed to comply with the provisions of this Article, or that the
Building Complex (including surrounding soil and any underlying or adjacent
groundwater) has become contaminated due to the operations or activities in
any way attributable to Tenant, then all of the costs and expenses of such
audit shall be paid by Tenant.
33.4. Tenant shall indemnify, defend, and hold harmless Landlord,
the manager of the Building Complex, and their respective officers, directors,
beneficiaries, shareholders, partners, agents, and employees from all fines,
suits, procedures, claims, and actions of every kind, and all costs associated
therewith (including attorneys' and consultants' fees) arising out of or in
any way connected with (i) any deposit, spill, discharge, or other release of
Hazardous Substances that occurs during the Term, at or from the Leased
Premises, (ii) Tenant's use or occupancy of the Leased Premises, or (iii)
Tenant's failure to provide all information, make all submissions, and take
all steps required by all authorities under the Hazardous Substance Laws and
all other environmental laws. This indemnity will remain in effect
notwithstanding that such fines, suits, procedures, claims, actions, and costs
may be incurred after the Expiration Date or the Termination Date. Tenant's
obligations and liabilities under this paragraph will survive the Expiration
Date and the Termination Date.
33.5. If Tenant's occupancy or conduct of business in or on the
Leased Premises, whether or not Landlord has consented to the same, results in
any increase in premiums for the insurance carried from time to time by
Landlord with respect to the Building Complex, Tenant shall pay any such
increase in premiums as Additional Rent within ten (10) days after a bill for
such additional premium is tendered by Landlord. In determining whether an
increased premium is a result of Tenant's use or occupancy of the Leased
Premises, a schedule issued by the organization computing the insurance rate
on the Building Complex showing the various components of the rate will be
conclusive evidence of the several items and charges that make up the rate.
Tenant shall promptly comply with all reasonable requirements of the insurance
authority or of any insurer now or hereafter in effect relating to the Leased
Premises.
ARTICLE 34. COMPLIANCE WITH LAWS AND OTHER REGULATIONS
Tenant, at its sole cost and expense, shall promptly comply with all
federal, state, county, and municipal laws, statutes, ordinances, and
governmental rules, regulations, or requirements, now or hereafter in force,
including, but not limited to, the Americans with Disabilities Act, with the
requirements of any board of fire underwriters or other similar body now or
hereafter constituted, and with any occupancy certificate issued pursuant to
any law by any public officer or officers that impose any duty upon Landlord
or Tenant insofar as they relate to or affect the condition, use, alteration,
or occupancy of the Leased Premises. Landlord's approval of Tenant's plans
for any improvements will create neither responsibility nor liability on the
part of Landlord for their completeness, design sufficiency, or compliance
with all laws, rules, and regulations of governmental agencies or
authorities, including, but not limited to, the Americans with Disabilities
Act.
ARTICLE 35. SEVERABILITY
This Lease shall be construed in accordance with the laws of the State
of Texas. If any clause or provision of this Lease is illegal, invalid, or
unenforceable under present or future laws effective during the Term, then It
Is the intention of the parties hereto that the remainder of this Lease shall
not be affected thereby. It is also the intention of both parties that in
lieu of each clause or provision that is Illegal, invalid, or unenforceable,
there is added as a part of this Lease a clause or provision that is as
similar in terms to such illegal, invalid, or unenforceable clause or
provision as may be possible and that is legal, valid, and enforceable.
ARTICLE 36. NOTICES
36.1. Whenever in this Lease it shall be required or permitted that
notice or demand be given or served by either party to this Lease to or on the
other, such notice or demand shall be given or served in writing and delivered
personally, forwarded by certified or registered mail, postage prepaid, or
recognized overnight courier, addressed as follows:
If to Landlord: Brookdale Investors, L.P.
3343 Peachtree Road NE
Suite 510
Atlanta, GA 30326
with a copy to: Fults Realty Corporation
16775 Addison Road
Suite 110
Addison, TX 75248
If to Tenant: The Premises
36.2. Notice given In accordance with this Article will be effective
upon (i) delivery in case of personal delivery, (ii) receipt or refusal in
case of certified or registered mail.
36.3. Prior to the Commencement Date, the address for notices to
Tenant will be the address set forth by its signature below. After the
Commencement Date, the address for notices to Tenant will be determined as
provided In this Article. Such addresses may be changed from time to time by
either party serving notice as provided above.
ARTICLE 37. OBLIGATIONS OF SUCCESSORS, PLURALITY, GENDER
Landlord and Tenant agree that all the provisions hereof are to be
construed as covenants and agreements as though the words imparting such
covenants were used in each paragraph hereof, and shall bind and Inure to the
benefit of the parties hereto, their respective heirs, legal representatives,
successors, and assigns. if the rights of Tenant hereunder are owned by two
or more parties, or two or more parties are designated herein as Tenant, then
all such parties shall be jointly and severally liable for the obligations of
Tenant hereunder. When used In this Lease, words of any gender are to include
any other gender, words In the singular number are to include the plural, and
words in the plural number are to Include the singular, unless the context
requires otherwise.
ARTICLE 38. ENTIRE AGREEMENT
This Lease and all attached addenda and exhibits constitute the entire
agreement between Landlord and Tenant. No prior or contemporaneous written or
oral leases or representations are binding. This Lease may not be amended,
changed, or extended except by written instrument signed by Landlord and
Tenant.
ARTICLE 39. PARAGRAPH CAPTIONS
Paragraph captions are for Landlord's and Tenant's convenience only, and
neither limit nor amplify the provisions of this Lease.
ARTICLE 40. CHANGES
If any mortgagee requires a modification of this Lease that will neither
bring about any Increased cost or expense to Tenant nor in any other way
substantially and adversely change the rights and obligations Of Tenant
hereunder, then Tenant agrees that this Lease may be so modified.
ARTICLE 41. AUTHORITY
Landlord and Tenant each represent to the other that each has full power
and authority to execute this Lease and to make and perform the agreements
herein contained, and Tenant expressly stipulates that any rights or remedies
available to Landlord, either by the provisions of this Lease or otherwise,
may be enforced by Landlord.
ARTICLE 42. BROKERAGE
Tenant represents and warrants to Landlord that it has dealt only with
Fults Realty Corporation, A Texas Corporation ("Landlord's Broker") and Grant
Laughlin Office Finders ("Tenant's Broker") in negotiation of this Lease.
Landlord shall make payment of the brokerage fee due to Landlord's Broker
pursuant to and in accordance with a separate agreement between Landlord and
Landlord's Broker. Tenant's Broker shall look only to Landlord's Broker for
any commission or fee claimed by Tenant's Broker, and Landlord shall have no
liability therefore. Tenant hereby agrees to indemnify and hold Landlord
and/or Landlord's agent harmless of and from any and all damages, losses,
costs, or expenses (including, without limitation, all attorneys' fees and
disbursements) by reason of any claim of or liability to Tenant's Broker
and/or other person claiming through Tenant and arising out of or in
connection with the negotiation, execution, and delivery of this Lease.
Additionally, Tenant acknowledges and agrees Landlord and/or Landlord's agent
shall have no obligation for payment of any brokerage fee or similar
compensation to any person with whom Tenant has dealt or may in the future
deal with respect to leasing of any additional Or expansion space in the
Building or renewals or extensions of this Lease.
ARTICLE 43. EXHIBITS
Exhibits A, B, C, D, E & F are attached hereto and Incorporated herein
for all purposes and are hereby acknowledged by both Parties to this Lease.
ARTICLE 44. APPURTENANCES
The Leased Premises include the right of ingress and egress thereto and
therefrom; however, Landlord reserves the right to make changes and
alterations to the Building, its fixtures and shipments street entrances,
doors, halls, corridors, lobbies, passages, elevators, escalators, stairways,
toilets, and other parts of the Building that Landlord may deem necessary or
desirable. Neither this Lease nor any use by Tenant of the Building or any
passage, door, tunnel, concourse, plaza, or any other area connecting the
garages or other buildings with the Building, shall give Tenant any right or
easement of such use and the use thereof may, without notice to Tenant, be
regulated or discontinued at any time and from time to time by Landlord
without liability of any kind to Tenant and without affecting the obligations
of Tenant under this Lease.
ARTICLE 45. COUNTERCLAIM
If Landlord acquires possession of the Leased Premises by summary
proceedings, or in any other lawful manner without judicial proceedings, it
shall be deemed a re-entry within the meaning of that word as used in this
Lease. In the event that Landlord commences any summary proceedings or action
for nonpayment of Rent or other charges provided for in this Lease, Tenant
shall not Interpose any counterclaim of any nature or description in any such
proceeding or action. Tenant and Landlord both waive a trial by jury of any
or all issues arising in any action or proceeding between the parties hereto
or their successors under or connected with this Lease or any Of its
provisions.
ARTICLE 46. RECORDING
Tenant shall not record this Lease, but shall at the request of Landlord
execute a memorandum or notice of the Lease in recordable form satisfactory to
both Landlord and Tenant specifying the date of commencement and expiration of
the term of this Lease and other information required or permitted by statute.
Either Landlord or Tenant may then record the memorandum or notice of lease.
ARTICLE 47. MORTGAGEE PROTECTION
Tenant agrees to give all mortgagees and all trust deed holders, by
Registered Mail, a Copy of any Notice of Default served upon Landlord,
provided that prior to such notice Tenant has been notified, in writing (by
way of Notice of Assignment of Rents and Leases, or otherwise), of the address
of such mortgagees and trust deed holders. Tenant further agrees that if
Landlord fails to cure such default within the time provided for in this
Lease, then the mortgagees and trust deed holders will have an additional
thirty (30) days within which to cure such default or if such default cannot
be cured within that time, then such additional time as may be necessary if
within such thirty (30) days, any mortgagee or trust deed holder has commenced
and is diligently pursuing the remedies necessary to cure such default,
(including but not limited to commencement of foreclosure proceedings if
necessary to effect such cure) in which event this Lease will not be
terminated while such remedies are being diligently so pursued.
ARTICLE 48. SHORING
If any excavation or construction is made adjacent to, upon, or within
the Building Complex or any part thereof, Tenant shall afford to any and all
persons causing or authorized to cause such excavation or construction a
license to enter upon the Leased Premises for the purpose of doing such work
as such persons shall deem necessary to preserve the Building Complex or any
portion thereof from injury or damage and to support the game by proper
foundations, braces, and supports, without any claim for damages or indemnity
or abatement of rent, and without any claim of a constructive or actual
eviction of Tenant.
IN WITNESS WHEREOF, Landlord and Tenant, acting herein through duly
authorized individuals, have caused this Lease to be executed in multiple
counterparts, each of which will have the force and effect of an original on
this _____ day of ______________, 199__.
TENANT: Natural Gas Technologies, Inc.
Tenant's Address for Notices
Before Commencement Date:
241 Pine Street By: /S/ BRENT A. WAGMAN
Suite 10LA Brent A. Wagman
Abilene, TX 79601 Its: President
Tax I.D. or Tax Exempt No.
75-248-2823
LANDLORD: Brookdale Investors, L.P.
a Delaware Limited Partnership
By: Brookdale Partners
a Georgia limited liability company
Its: Sole General Partners
By: /S/ FRED H. HENRITZ
Name: /S/ Fred H. Henritz
Title: /S/ Manager
EXHIBIT A
PLOT PLAN WITH OUTLINE OF LEASED PREMISES
Diagram represents layout of space rented under this
lease.
The Atrium at Bent Tree
FLOOR 3
16775 ADDISON RD.
DALLAS, TEXAS
EXHIBIT B
LEGAL DESCRIPTION
BEING a tract of land situated in the William Lomax Survey, Abstract No. 792
and being a part of The Atrium, an additional to the City of Addison as
recorded in Volume 32006, Page 0361 of the Deed Records of Dallas County,
Texas, and also being part of Lot 5 and Lot 19 of the Carroll Estates
Addition, an addition to the City of Addison as recorded in Volume 10, Page
473 of the Deed Records of Dallas County, Texas, and being more particularly
described as follows:
BEGINNING at an iron rod found at the intersection of the West line of Addison
Road (60' R.O.W.) with the North line of Bent Tree Plaza (60' R.O.W.):
THENCE: North 89(Degrees)50'15" West, along the North line of said Bent Tree
Plaza and or future R.O.W. for a distance of 730.00 ft. to an iron rod found
for a corner;
THENCE: North 00(Degrees)14'16" West, for a distance of 307.75 ft. to an
iron rod found for a corner;
THENCE: South 89(Degrees)50'15" East, for a distance of 730.00 ft. to an
iron rod found in the West line of said Addison Road;
THENCE: South 00(Degrees)14'16" East, along the West line of said Addison
Road for a distance of 307.75 ft. to the Point of Beginning and containing
5.1574 acres (224,656 sq.ft.) of land.
EXHIBIT C
LANDLORD'S WORK
The Leased Premises shall be improved in accordance with the plans and notes
listed below including:
painting & patching walls as noted; removing cabinet base; replacing missing
carpet base throughout ; patching side of cabinet and painting it and steam
cleaning carpets throughout.
Such improvements shall be at Landlord's sole cost and expense. Should Tenant
desire any improvements beyond the scope of the work listed below then such
improvements shall be at the Tenant's sole cost and expense.
EXHIBIT D
RULES AND REGULATIONS
1. The sidewalks, entries, passages, court, corridor, stairways, and
elevatorsshall not be obstructed or used for purposes other than ingress or
egress by Tenant, Tenant's employees, agents, or invitees.
2. Tenant shall riot place within the Building any objects which
exceed the floor weight specifications of the Building without the express
prior written consent of Landlord. The placement and positioning of all such
objects within the Building shall be reasonably prescribed by Landlord, and
such objects shall, in all cases, be placed upon plates or footings of such
size as shall be reasonably prescribed by Landlord. Any damage done to the
Building by taking in or removing any heavy article from or overloading any
floor in any way shall be paid by Tenant. Defacing or injuring in any way any
part of the Building Complex by Tenant, his agent, or servants shall be paid
by Tenant.
3. Initial name and number plates on doors shall be provided by
Landlord and any revisions or changes thereto shall be at the expense of
Tenant. A directory, located in a conspicuous place and listing the names of
the tenants of the Building, shall be provided by Landlord. Initial directory
listings shall be at the cost of Landlord and any revisions or changes thereto
shall be at the expense of Tenant. Any necessary revision in such directory
shall be made by Landlord within a reasonable time after written notice from
Tenant, but Landlord shall not be responsible for any inconvenience or damage
caused to Tenant as a result of error in such directory.
4. Tenant shall not mark, paint, drill into, cut, string wires
within, or in any way deface any part of the Building with anything except
normal picture hanging apparatus without the express prior written consent of
Landlord. Upon removal of any wall decorations or installations or floor
coverings by Tenant, any damage to the walls or floors shall be repaired by
Tenant at Tenant's sole cost and expense. Without limitation upon any of the
provisions of the Lease, Tenant shall refer all contractors, representatives,
installation technicians, and other mechanics, artisans, and laborers
rendering any service in connection with the repair, or permanent improvements
of the Leased Premises to Landlord for Landlord's approval before performance
of any such service. This Paragraph 4 shall apply to all work performed in
the Building, including, without limitation, installation of telephones,
telegraph equipment, electrical devices, and attachments and installations of
any nature affecting floors, walls, woodwork, trim, windows, ceilings,
equipment, or any other portion of the Building. Plans and specifications for
such work prepared at Tenant's sole expense shall be submitted to Landlord
and shall be subject to Landlord's express prior written approval in each
instance before the commencement of work. Subject to the provisions of the
lease, all installations, alterations, and additions shall be constructed by
Tenant in a good and workmanlike manner and only good grades of material shall
be used in connection therewith. The means by which telephone, telegraph, and
similar wires are to be introduced to the Building Complex and Leased Premises
and the location of telephones, call boxes, and other office equipment affixed
to the Building Complex shall be subject to the express prior written approval
of Landlord. Article 15 of the Lease will control if it conflicts with any
provision of this Paragraph 4.
5. Tenant shall not employ any person other than the janitor of
Landlord for the purpose of cleaning the Leased Premises without the written
consent of Landlord. Landlord shall not be responsible to Tenant for loss of
property from the Leased Premises or for any damage done to the furniture by
any janitor, any of his employees, or by any other person. Any person employed
by Tenant for the purposes of cleaning the Leased Premises, with the written
consent of Landlord, must be subject to and under the control and direction
of the Building janitor.
6. Landlord shall furnish Tenant initial keys as reasonably required
for each corridor door entering the Leased Premises. Additional keys shall be
furnished at a charge by Landlord on an order signed by Tenant or Tenant's
authorized representative. Tenant shall not make duplicate copies of such
keys. Tenant shall not install additional locks or bolts of any kind upon any
of the doors or windows of, or within, the Building, nor shall Tenant make
any changes in existing locks or the mechanisms thereof. Tenant shall, upon
the termination of its tenancy, provide Landlord or its representative with
the combinations to all combination locks on safes, safe cabinets and vaults
and deliver to Landlord all keys to the Building, the Leased Premises and all
interior doors, cabinets, and other key-controlled mechanisms therein, whether
or not such keys were furnished to Tenant by Landlord. Tenant shall pay to
Landlord the reasonable cost of replacing the same or of changing the lock or
locks opened by such lost key if Landlord shall reasonably deem it necessary
to make such a change.
7. Tenant shall comply with all requirements necessary for the
security of the Building Complex, including the use of service passes issued
by Landlord for after hours removal of office equipment, packages, and signing
in and/or out in the security register in the Building lobby after hours if
required by Landlord. Landlord reserves the right to deny entrance to the
Building or remove any person from the Building Complex in any case where the
conduct of such person involves a hazard or nuisance to any tenant of the
Building Complex or to the public or in the event of fire or other emergency,
riot, civil commotion, or similar disturbance involving risk to the Building
Complex, tenants, or the general public. Landlord also reserves the right to
make such Rules and Regulations as it may see fit concerning the use of
electric current, water, and other supplies of the Building and to designate
such hours as the Building may be closed.
8. The water closets and other water fixtures shall not be used for
any purpose other than those for which they were constructed. Any damage
resulting to them from misuse or the defacing or injury of any part of the
Building shall be paid for by Landlord, excepting only where defacing or
injury is done by Tenant or an agent of Tenant. Tenant shall not waste water
by interfering with the operation of any plumbing fixture.
9. Tenant shall not disturb the occupants of the Building by the use
of any musical or sound producing instruments, making unseemly noises, or by
interference in any way. Tenant shall not bring any dogs or other animals
into the Building other than seeing-eye dogs.
10. Tenant shall not bring or keep within the Building any bicycle
or motorcycle.
11. All office equipment and any other devise of any electrical or
mechanical nature shall be placed by Tenant in the Leased Premises in settings
reasonably approved by Landlord so as to absorb or prevent any vibration,
noise, or annoyance. Tenant shall not cause improper noises, vibrations, or
odors within the Building.
12. Nothing shall be thrown out of the doors of the Building or down
stairways or other passages by Tenant.
13. All glass, locks, and trimmings in or about the doors and
windows, and all electric globes and shades belonging to the Building Complex
shall be kept whole; and whenever broken by Tenant, shall be immediately
replaced or repaired and put in order by Tenant under the direction and to the
satisfaction of Landlord.
14. Canvassing, soliciting, and peddling in the Building is
prohibited, and Tenant shall cooperate to prevent the same. Tenant shall
notify the Building Manager promptly of any unauthorized person who is
soliciting from or causing annoyance to tenants, their employees, guests, or
invitees.
15. Parking in unmarked areas, blocking of walkways, loading areas,
entrances, or alleyways shall not be permitted. Should such a situation
exist, Landlord, at its option, shall have the right to tow such vehicle away
at the owner's expense.
16. Landlord shall not be responsible for, and Tenant hereby
indemnifies and holds Landlord harmless from any liability in connection with
the loss, theft, misappropriation, or other disappearance of furniture,
furnishings, fixtures, machinery, equipment, money, jewelry, or other items of
personal property from the Leased Premises or other parts of the Building
regardless of whether the Leased Premises or Building are locked at the time
of such loss, UNLESS THE LOSS ARISES FROM LANDLORD'S WILLFUL OR NEGLIGENT ACTS
OR OMISSIONS.
17. Tenant, its agents, servants, and employees shall, before
leaving the Leased Premises unattended, close and lock all doors and shut off
all lights. Corridor doors, when not in use, shall be kept closed. Subject
to applicable fire or other safety regulations, all doors opening into public
areas of the Building Complex, and all doors upon the perimeter of the Leased
Premises shall be kept closed and, during non-business hours, locked, except
when in use for ingress or egress. If Tenant uses the Leased Premises after
regular business hours or on non-business days, Tenant shall lock any entrance
doors to the Leased Premises immediately after using such doors.
18. Tenant shall not deposit any trash, refuse, cigarettes, or other
substances of any kind within or out of the Building except in refuse
containers provided therefor.
19. To ensure orderly operation of the Building Complex, no
deliveries inconsistent with normal operations of the Tenant as permitted
under Section 3.1 of the Lease may be made to any leased area except by
persons appointed or approved by Landlord in writing. There shall not be used
in any space or in the public halls of the Building, either by Tenant, by
jobbers, or others, in the delivery or receipt of merchandise, any hand
trucks, except those equipped with rubber tires and side guards. Hand trucks
are not permitted in the passenger elevators.
20. Tenant shall be responsible for any damage to carpeting and
flooring as a result of rust or corrosion of the file cabinets, pot holders,
roller chairs, and metal objects.
21. Movement in or out of the Building complex of furniture or
office equipment, or dispatch or receipt by Tenant of any bulky materials,
merchandise, or materials which requires use of elevators, is restricted to
the freight elevator if applicable. Tenant shall use its best efforts to
protect common areas and building elevators during movement in and out of the
Building Complex of furniture or office equipment, or dispatch and receipt
by Tenant of any bulky materials or merchandise. Movement through the
building entrances or lobby shall be restricted to such hours as Landlord
shall designate. All such movement shall be scheduled with the Building
Management Office and done in a manner agreed between Tenant and Landlord by
prearrangement before performance. Such prearrangement initiated by Tenant
shall include determination by Landlord, and subject to its decisions and
control as to the time, method, and routing of movement, and as to limitations
for safety or other concerns which may prohibit any article, equipment, or any
other item being brought into the Building. Tenant shall assume all risk
regarding damage to articles moved and injury to persons or public engaged or
not engaged in such movement, including equipment, property, and personnel of
Landlord if damaged or injured as a result of any act in connection with
carrying out this service for Tenant from time of entering the Building
Complex to completion of work; and Landlord shall not be liable for acts of
any person engaged in, or any damage or loss to any of said property or person
resulting from any act in connection with such service performed for Tenant.
22. Tenant shall not use the Building for lodging, sleeping, or for
any immoral or illegal purposes or for any purpose that will damage the
Building, or the reputation thereof, or for any purposes other than those
specified in the Lease.
23. Tenant shall not obstruct or interfere with the rights of other
tenants of the Building or of persons having business in the Building or in
any way injure or annoy such tenants or persons.
24. Tenant shall not commit any act or permit anything in or about
the Building which shall or might subject Landlord to any liability or
responsibility for injury to any person or property by reason of any business
or operation being carried on, in or about the Building or for any other
reason subject to the terms of this Lease.
25. Tenant shall not commercially cook or prepare food, or place or
use any inflammable, combustible, explosive, or hazardous fluid, chemical,
device,substance, or material in or about the Building without the prior
written consent of Landlord over and above its initial use and leased purpose
of the Leased Premises. Tenant shall comply with the statutes, ordinances,
rules, orders, regulations, and requirements imposed by governmental or quasi-
governmental authorities in connection with fire and public safety and fire
prevention and shall not commit any act or permit any object to be brought or
kept in the Building which shall result in an increase in the cost of any
insurance purchased by Landlord in connection with this Lease.
26. Tenant shall not install or use in the Building any air
conditioning unit, engine, boiler, generator, machinery, heating unit, stove,
water cooler, ventilator, radiator, or any other similar apparatus without the
express prior written consent of Landlord, and then only as Landlord may
reasonably direct.
27. Landlord reserves the right to exclude or expel from the
Building Complex any person who, in the reasonable judgment of Landlord, is
intoxicated or under the influence of liquor or drugs or who shall in any
manner act in violation of the Rules and Regulations of the Building Complex.
28. No signs, awnings, showcases, advertising de-ices, or other
attached to the outside walls of the projections or obstructions shall be
Building or attached or placed upon any Common Areas without the express prior
written consent of Landlord. No blinds, drapes, or other window coverings
shall be installed in the Building without the express prior written consent
of Landlord. No sign, picture, advertisement, window display, or other public
display or notice shall be inscribed, exhibited, painted, or affixed by Tenant
upon or within any part of the Leased Premises in such a fashion as to be seen
from the outside of the Leased Premises of the Building without the express
prior written consent of Landlord. In the event of the violation of any of
the foregoing by Tenant, Landlord may, within fifteen (15) days of written
notice to Tenant, during which period Tenant may repair same, remove the
articles constituting the violation without any liability unless a loss other
than said removal arises from Landlord's willful or negligent acts or
omissions, and Tenant shall reimburse Landlord for the reasonable expenses
incurred in such removal upon demand and upon submission of applicable bills
as Additional Rent under the Lease.
29. Tenant shall not use the name of the Building (except as a
portion of its address) or the name of Landlord in its business name,
trademarks, signs, advertisements, descriptive material, letterhead, insignia,
or any other similar item without Landlord's express prior written consent.
30. The sashes, sash doors, skylights, windows, and doors that
reflect or admit light or air into the Common Areas shall not be covered or
obstructed by Tenant through placement of objects upon window sills or
otherwise. Tenant shall cooperate with Landlord in obtaining maximum
effectiveness of the cooling system of the Building by closing drapes and
other window coverings when the sun's rays fall upon windows of the Leased
Premises. Tenant shall not obstruct, alter, or in any way impair the
efficient operation of Landlord's heating, ventilating, air conditioning,
electrical, fire, safety, or lighting system.
31. Employees of Landlord shall not receive or carry messages for or
to Tenant or any other person, nor contract with nor render free or paid
services to Tenant or Tenant's servants, employees, contractors, jobbers,
agents, invitees, licensees, guests, or visitors.
32. Tenant shall not tamper with or attempt to adjust temperature
control thermostats in the Leased Premises or the Building Complex. Landlord
shall make adjustments, if necessary, in Landlord's reasonable discretion, to
thermostats on call from Tenant.
33. Smoking is prohibited in all common areas of the Building and in
all other portions of the Building Complex as Landlord may determine in its
sole judgment or as required by applicable law. Smoking will be permitted in
designated smoking areas only.
Landlord reserves the right to rescind any of these Rules and
Regulations and to make such other and further Rules and Regulations as in its
judgment shall, from time to time, be needed for the safety, protection, care,
and cleanliness of the Building Complex, the operation thereof, the
preservation of good order therein, and the protection of comfort of the
tenants and their agents, employees, and invitees, which Rules and
Regulations, when made and written notice thereof is given to Tenant, shall be
binding upon Tenant in like manner as if originally herein prescribed. All
Rules and Regulations will be uniformly applied to all Tenants.
EXHIBIT E
Base Rent Schedule
Period Annual Rent Monthly Rent
4/1/97 thru 8/31/98 $36,592.44 $3049.37
EXHIBIT F
PARKING AGREEMENT
RESERVED AND NON-RESERVED PARKING SPACES
COVERED PARKING AND SURFACE
This Exhibit is attached to and a part of that certain Lease Agreement
dated as of March 12, 1997 executed by and between Brookdale Investors, L.P.
and Natural Gas Technologies, Inc. (the "Lease"). Any capitalized term not
defined herein shall have the meaning assigned to it in the provisions of the
Lease identified as the Basic Lease Provisions or Supplemental Lease
Provisions, as applicable. Landlord and Tenant mutually agree as follows:
1. Parking Spaces. So long as the Lease of which this Exhibit is a part
shall remain in effect, Tenant or persons designated by Tenant shall
have the right (but not the obligation) to rent during the term of this
Lease on (i) a reserved basis up to TWO (2) parking spaces in the
Covered Parking and on a Non Reserved Basis up to FOUR (4) parking
spaces in the surface parking lot adjacent to the Building (the
"Surface Lot").
2. Parking Rental. The rent for such Covered Parking spaces shall be the
rate from time to time designated by Landlord for the Building. On the
execution date of the Lease, the parking rental rate is $25.00 for each
reserved parking space in the Covered Parking, and $-0- for each
unreserved parking space in the Surface Lot. Landlord shall provide
Tenant at least thirty (30) days notice of any change in the parking
rates in the Covered Parking and the giving of such notice shall be
deemed an amendment to this Exhibit and Tenant shall thereafter pay the
adjusted rent. All payments of rent for parking spaces shall be made
(i) at the same time as Basic Monthly Rent is due under the Lease and
(ii) to Landlord or to such persons (for example but without
limitation, the manager of the Covered Parking) as Landlord may direct
from time to time.
3. Rules and Regulations. A condition of any parking shall be compliance
by the parker with rules and regulations, including any sticker or
other identification system established by Landlord. The following
rules and regulations are in effect until notice is given to Tenant
of any change. Landlord reserves the right to modify and/or adopt such
other reasonable and generally applicable rules and regulations for the
Covered Parking and the Surface Lot as it deems necessary for the
operation of the Covered Parking and the Surface Lot.
(a) Cars must be parked entirely within the stall lines painted on
the floor.
(b) All directional signs and arrows must be observed.
(c) The speed limit shall be five (5) miles per hour.
(d) Parking is prohibited in areas not striped for parking, aisles,
areas where "no parking" signs arc posted, in cross hatched
areas and in such other areas as may be designated by Landlord
or Landlord's agent(s) including, but not limited to, areas
designated as "Visitor Parking" or reserved spaces not rented
under this Exhibit.
(e) Every parker is required to park and lock his own car. All
responsibility for damage to cars or persons or loss of
personal possessions is assumed by the parker.
(f) Spaces which are designated for small, intermediate or
full-sized cars shall be so used. No intermediate or full-size
cars shall be parked in a parking spaces limited to compact
cars.
4. Default. Failure to promptly pay the rent required hereunder shall
constitute a default under the Lease and Landlord, may, at its option
and in addition to all other remedies provided for in the Lease,
terminate Tenant's rights to use the Covered Parking or the Surface
Lot. Landlord may refuse to permit any person who Violates the rules
to park in the Covered Parking and/or the Surface Lot and any violation
of the rules shall subject the car to removal at the car owner's
expense. No such refusal or removal shall create any liability on
Landlord or be deemed to interfere with Tenant's right to quiet
possession of the Premises.
Exhibit 10.12
AGREEMENT FOR SALE AND PURCHASE OF STOCK
THIS AGREEMENT is entered into as of April 1, 1997, by and between Joe E.
Starks ("Seller") and Natural Gas Technologies, Inc., a Texas corporation
("Purchaser").
The parties hereto agree as follows:
1. Purchase and Sale.
Seller hereby agrees to sell to Purchaser, and Purchaser hereby agrees to
purchase from Seller, on the terms and conditions hereinafter set forth, ten
thousand (10,000) shares of common stock of Interior Energy, Inc., a Texas
corporation (the "Company"). The 10,000 shares of common stock of the Company
to be conveyed by Seller pursuant to this Agreement are hereinafter referred
to as the "Stock".
2. Purchase Price.
The Purchase Price for the Stock shall be $6,275,000.
3. Payment of Purchase Price.
The Purchase Price shall be payable by Purchaser to Seller at Closing as
follows:
a. The sum of $500,000 in cash or certified funds or other
collected funds (U.S. currency) or by wire transfer of U.S. currency
through the U.S. Federal Reserve System to a bank designated by Seller at
or before Closing.
b. Purchaser shall assume and agree to pay that certain
promissory note of the Company, dated April 1, 1997, in the original
principal amount of $3,475,00 (the "Note") payable to the order of EXP,
Inc., a Texas corporation ("EXP"). The Note shall have a maximum
outstanding principal balance as of Closing of $3,000,000.
c. The balance of the Purchase Price shall be payable by the
issuance and delivery by Purchaser to Seller of 370,000 shares of common
stock of Purchaser. For purposes of this Agreement the common stock of
Purchaser is valued at $7.50 per share.
4. Representations and Warranties of Seller. In addition to the
representations and warranties contained in other paragraphs of this
Agreement, Seller represents and warrants to Purchaser, as of the date of this
Agreement and as of Closing, the following:
a. The Stock is all of the issued and outstanding common stock
of the Company.
b. Seller is the owner of good and marketable title to, and
the entire right, title and interest in, the Stock. Purchaser will
acquire hereunder good and marketable title, and the entire right, title
and interest in the Stock free and clear of all liens, encumbrances,
liabilities, claims, rights, demands, agreements, covenants, and
conditions of any kind or nature.
c. The Company is the owner of good and marketable title to,
and the entire right, title and interest in, the following described
property (the "Underlying Property") free and clear of all liens,
encumbrances, liabilities, claims, rights, demands, leases, agreements,
covenants, and conditions of any kind or nature:
i. The overriding royalty to certain leases (the
"Overriding Royalty") acquired by the Company from EXP pursuant to
that certain Assignment of Overriding Royalty, dated April 1, 1997,
and recorded April 21, 1997 in Volume 483, Page 681 of the Official
Public Records of Wilbarger County, Texas.
ii. All of the tangible personal property and equipment (the
"Personal Property") acquired by the Company from EXP pursuant to
that certain Bill of Sale, dated April 1, and recorded April 21,
1997 in Volume 483, Page 683 of the Official Public Records of
Wilbarger County, Texas.
iii. Those certain oil, gas and mineral leases, or interests
therein (the "Leases"), acquired by the Company from EXP pursuant to
that certain Bill of Sale, dated April 1, and recorded April 21,
1997 in Volume 483, Page 686 of the Official Public Records of
Wilbarger County, Texas.
d. The outstanding principal balance of the Note is
$3,000,000, a true and complete copy of the Note is attached hereto as
Exhibit A, there have been no amendments to the Note and no default
exists under the Note.
e. Seller has the capacity and authority to enter into this
Agreement, and nothing prohibits or restricts the right or ability of
Seller to proceed with the closing of the transaction contemplated hereby
and to carry out its terms.
f. The Company is not in default in respect of any of its
obligations or liabilities pertaining to the Underlying Property, or any
part thereof, and there will not be as of Closing any state of facts or
circumstances or conditions or events which, after notice or lapse of
time or both would constitute or result in any such default.
g. Neither this Agreement nor any other agreement, document or
instrument executed or to be executed in connection with this Agreement,
nor anything else provided for in or contemplated by this Agreement or
any such other agreement, document or instrument, does now or shall
hereafter breach, invalidate, cancel, make inoperative or interfere with
(or result in the breach, invalidation, cancellation or inoperativeness
of, or the interference with) any contract, agreement, loan commitment,
instrument, mortgage, deed of trust, lease, bank loan or credit
agreement, easement, right, interest, covenant, condition, restriction,
corporate charter, bylaw or partnership (individually and collectively
hereinafter called "Limitations") to which either Seller or the Company
is a party or by which either Seller or the Company is bound or affected
or which now or hereafter affects or relates to the Stock or the
Underlying Property, or any part thereof.
h. There are no actions, suits or proceedings pending, or to
the knowledge of Seller threatened, before any judicial body or any
governmental authority, against or affecting or relating to the Stock or
the Underlying Property; and neither Seller nor the Company is in default
with respect to any order, writ, injunction, decree or demand of any
court or any governmental authority relating to the Stock or the
Underlying Property, or any part thereof.
i. No default in respect of any of the obligations of the
landlord under any Lease exists. No state of facts or circumstances or
condition or event exists or has occurred which, after notice or lapse of
time or both, would constitute or result in any such default. The
Company has no obligation to make any settlement with or payment to any
person or entity by reason of or in connection with any Lease. Seller
shall hold Purchaser harmless from and against all expense and liability
in connection with any claims made by any person or entity under any
Lease (including, but not limited to, court costs and reasonable
attorneys' fees) accruing or pertaining to acts or omissions of the
Company prior to Closing.
j. There are no non-resident foreign taxpayers which are or
will be directly or indirectly entitled to all or any portion of the
proceeds from the sale of the Stock.
The foregoing representations are true and the foregoing warranties and
agreements are in full force and effect and binding on Seller as of the date
hereof (unless otherwise provided herein-above) and such representations shall
be true and such warranties and agreements shall be in full force and effect
as of the date and time of Closing.
5. Representations and Warranties of Purchaser.
Purchaser represents and warrants to Seller as of the date of this
Agreement and as of the Closing, the following:
a. The consummation of the transaction contemplated herein and
the fulfillment of the terms hereof will not result in a breach of any of
the terms or provisions of, or constitute a default under any agreement,
document or charter to which Purchaser is a party or by which it is
bound, or any order, rule or regulation of any court or of any regulatory
body or any administrative agency or any other governmental body having
jurisdiction over the Purchaser, its properties or business; and no
consent, approval, authorization or order of any court or governmental
agency or body is required for the consummation of the transaction
contemplated herein.
b. Purchaser has the capacity and authority to enter into this
Agreement, and nothing prohibits or restricts the right or ability of
Purchaser to proceed with the closing of the transaction contemplated
hereby and to carry out its terms.
c. This Agreement and all agreements, instruments and
documents herein provided to be executed by Purchaser are duly executed
by and are binding upon Purchaser.
6. No Brokers.
Purchaser and Seller represent and warrant to one another that no broker,
person or entity is entitled to a commission, finder's fee or other
compensation arising from this Agreement or the transaction contemplated
hereby, and each party hereby agrees to indemnify, defend and hold the other
party harmless from and against any and all claims, loss or damage relating to
or arising out of any claim for commission, finder's fee or other compensation
by any broker, person or entity claiming by or through such indemnifying
party.
7. Survival.
All warranties, representation, covenants, obligations and agreements
contained in this Agreement shall survive the execution and delivery of this
Agreement and of any and all documents or instruments delivered in connection
herewith and shall survive the Closing hereunder and the transfer and
conveyance of the Stock hereunder and any and all performances in accordance
with this Agreement.
8. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto, and their respective heirs,
personal representatives, successors, and assigns; provided, however, that
neither Purchaser nor Seller shall assign their interest in this Agreement
without the prior written consent of the other party.
9. Closing.
The sale and purchase herein provided shall be consummated by the parties
concurrently with their execution of this Agreement.
a. Concurrently with its execution of this Agreement Seller
shall deliver or cause to be delivered to Purchaser the following:
i. A Stock Assignment, in the form attached hereto as
Exhibit B, duly executed by Seller, conveying the Stock to
Purchaser;
ii. An Assignment and Assumption of Promissory Note, in
the form attached hereto as Exhibit C, duly executed by Seller and
EXP;
iii. A Certification of Non-Foreign Status pursuant to
Section 1445 of the U.S. Internal Revenue Code of 1986, as amended,
and the Regulations thereunder.
iv. All other documents required to be executed by Seller
pursuant to the terms of this Agreement.
b. Concurrently with its execution of this Agreement Purchaser
shall deliver or cause to be delivered to Seller the following:
i. The cash portion of the Purchase Price as provided in
Paragraph 3.a.;
ii. An Assignment and Assumption of Promissory Note, in the
form attached hereto as Exhibit C, duly executed by Purchaser;
iii. A stock certificate evidencing Seller's ownership of
370,000 shares of common stock of Purchaser;
iv. All other documents required to be executed by Purchaser
pursuant to the terms of this Agreement.
c. Seller shall, whenever and as often as it shall be
reasonably requested so to do by Purchaser, and Purchaser shall, whenever
and as often as it shall be reasonably requested so to do by Seller,
execute, acknowledge, and deliver, or cause to be executed, acknowledged,
or delivered, any and all such further conveyances, assignments,
confirmations, satisfactions, releases, instruments, or other documents
as may be necessary, expedient or proper, in order to complete any and
all conveyances, transfers, sales and assignments herein provided and to
do any and all other acts and to execute, acknowledge and deliver any and
all documents as so requested in order to carry out the intent and
purpose of this Agreement.
10. Operational Information.
Without limitation on its other obligations under or in connection with
this Agreement, Seller shall at any time and from time to time after the date
hereof, upon Purchaser's reasonable request, provide Purchaser with
information, schedules and statements concerning the operation of the
Underlying Property prior to the Closing (including, but not limited to,
descriptions of the Underlying Property and statements showing the revenues
and expenses therefrom).
11. General.
a. Entire Agreement. This Agreement contains the entire
agreement between the parties respecting the matters herein set forth and
supersedes all prior agreements, whether written or oral, between the
parties respecting such matters. Any amendments or modifications hereto
in order to be effective shall be in writing and executed by the parties
hereto.
b. Time of Essence. Time is of the essence in the performance
of each and every term, condition, and covenant of this Agreement.
c. Counterparts. This Agreement may be executed in any number
of counterparts, each of which when so executed and delivered shall be
deemed an original, but such counterparts together shall constitute but
one and the same instrument.
d. Paragraph Headings. The paragraph headings herein
contained are for purposes of identification only and shall not be
considered in construing this Agreement.
e. Attorneys' Fees. The prevailing party in any legal
proceeding brought to enforce rights hereunder shall recover from the
other party its reasonable attorneys' fees and costs. As used herein the
term "prevailing party" means the party entitled to recover costs in any
suit, whether or not brought to judgment, and whether or not incurred
before or after the filing of suit.
f. Waiver. Except as herein expressly provided, no waiver by
a party of any breach of this Agreement or of any warranty or
representation hereunder by another party shall be deemed to be a waiver
of any other breach of any kind or nature (whether preceding or
succeeding and whether or not of the same or similar nature), and no
acceptance of payment or performance by a party after any such breach by
another party shall be deemed to be a waiver of any further breach of
this Agreement or of any representation or warranty hereunder by such
other party whether or not the first party knows of such a breach at the
time it accepts such payment or performance. No failure on the part of
a party to exercise any right it may have by the terms hereunder or by
law upon the default of another party, and no delay in the exercise
thereof by the first party at any time when such other party may continue
to be so in default, shall operate as a waiver of any default, or as
a modification in any respect of the provisions of this Agreement.
g. Gender. Whenever the singular or plural number, masculine
or feminine or neuter gender is used herein, it shall equally include the
other.
h. Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the State of Texas.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
PURCHASER:
NATURAL GAS TECHNOLOGIES, INC.
By: _______________________________
Title: ____________________________
SELLER:
/S/ JOE E. STARKS
JOE E. STARKS
Peggy P. Starks, the wife of Seller, has executed this Agreement for the
purpose of acknowledging her agreement to relinquish in favor of Purchaser any
and all rights that she may have in the Stock by virtue of the community
property laws of the State of Texas. By her execution hereof she expressly
agrees to execute the Stock Assignment referred to in Paragraph 9.a.i. of the
Agreement, as well as any other documents that Seller may be required to
execute pursuant to Paragraph 9.c. of the Agreement.
/S/ PEGGY P. STARKS
PEGGY P. STARKS
EXHIBIT A
[attach copy of Note]
EXHIBIT B
[attach copy of Stock Assignment]
EXHIBIT C
[attach copy of Assignment and Assumption of Note]
ASSIGNMENT AND ASSUMPTION OF PROMISSORY NOTE
THIS ASSIGNMENT AND ASSUMPTION OF PROMISSORY NOTE ("Agreement") is made
and entered into effective as of April 1, 1997, by and among Natural Gas
Technologies, Inc., a Texas corporation ("NGT"), Interior Energy, Inc., a
Texas corporation ("IEI") and EXP, Inc., a Texas corporation ("EXP").
RECITALS:
A. On March 1, 1997 IEI, in connection with IEI's acquisition of
certain assets of EXP, executed a Promissory Note in the original principal
amount of $3,475,000 payable to the order of EXP (the "Note").
B. Of even date herewith NGT is acquiring from Joe E. Starks, the
sole shareholder of IEI, all of the outstanding common stock of IEI.
C. As partial consideration for the acquisition of the stock of IEI
NGT has agreed to assume IEI's obligations with respect to the Note.
D. EXP desires to evidence it consent to the assignment of the Note
to NGT and NGT's assumption of IEI's obligations with respect thereto.
NOW, THEREFORE, in consideration of the foregoing Recitals, the mutual
covenants and agreements set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto, intending to be legally bound, hereby agree as follows:
12. IEI hereby assigns to NGT all of IEI's right, title and interest
in and to the Note, and NGT hereby assumes the obligation of IEI for repayment
of the loan evidenced by the Note. NGT further assumes and agrees to comply
with any and all obligations and covenants of IEI contained in the Note and
agrees to be bound thereby without any change or modification thereto.
13. EXP hereby consents to the assignment of the Note by IEI to NGT
and to the assumption by NGT of IEI's obligations with respect thereto.
However, nothing herein shall relieve NGT from liability with respect to the
Note.
14. IEI and EXP hereby represent to NGT the following with respect to
the Note:
a. The current outstanding principal balance of the Note as of
the effective date hereof is $3,000,000.
b. A true and complete copy of the Note is attached hereto as
Exhibit A.
c. There have been no amendments to the Note.
d. As of the effective date hereof no default exists under the
Note.
15. This Agreement shall be governed and construed in accordance with
the laws of the State of Texas.
16. This Agreement may be executed in any number of counterparts, each
of which when so executed and delivered shall be deemed an original, but such
counterparts together shall constitute but one and the same instrument.
17. All warranties, representation, covenants, obligations and
agreements contained in this Agreement shall survive the execution and
delivery of this Agreement.
18. This Agreement shall be binding upon and inure to the benefit of
the parties hereto, and their respective heirs, personal representatives,
successors, and assigns.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective from and as of the date first above written.
NATURAL GAS TECHNOLOGIES, INC.
By: /S/ BRENT A. WAGMAN
Title: President
INTERIOR ENERGY, INC.
By: /S/ JOE E. STARKS
Title: President
EXP, INC.
By: /S/ JERRY MOEN
Title: President
EXHIBIT A
[attach copy of Note]
STOCK ASSIGNMENT
THIS STOCK ASSIGNMENT (this "Assignment") is executed and delivered April
1, 1997, by Joe E. Starks, as assignor ("Assignor"), to and in favor of
Natural Gas Technologies, Inc., a Texas corporation, as assignee ("Assignee").
RECITALS:
E. Assignor is the owner of ten thousand shares of the issued and
outstanding common stock (the "Shares") of Interior Energy, Inc., a Texas
corporation (the "Company").
F. Assignor desires to sell, transfer and assign to Assignee all of
Assignor's right, title and interest in and to the Shares.
NOW, THEREFORE, in consideration of Ten and No/100 Dollars ($10.00) in
hand paid, and other good and valuable consideration, the receipt and
sufficiency of which Assignor acknowledges, Assignor, intending to be legally
bound, agrees as follows:
19. Assignor hereby sells, grants, conveys, assigns, transfers, sets
over and delivers unto Assignee all of Assignor's right, title and interest in
and to the Shares.
20. Assignor hereby irrevocably constitutes and appoints Brent Wagman
as his attorney-in-fact to transfer the Shares on the books of the Company,
with full power of substitution in the premises.
21. This Assignment shall be construed in accordance with and governed
by the laws of the State of Texas.
22. This Assignment shall be binding upon and shall inure to the
benefit of Assignor and Assignee and their respective heirs, successors and
assigns.
IN WITNESS WHEREOF, Assignor has executed this Assignment as of the date
first above written.
ASSIGNOR:
/S/ JOE E. STARKS
JOE E. STARKS
Peggy P. Starks, the wife of Assignor, has executed this Stock Assignment
for the purpose of relinquishing in favor of Assignee any and all rights that
she may have in the Shares by virtue of the community property laws of the
State of Texas.
/S/ PEGGY P. STARKS
PEGGY P. STARKS
Exhibit 10.13
ASSIGNMENT OF OIL, GAS AND MINERAL LEASES,
AND BILL OF SALE OF INTERESTS IN WELL AND EQUIPMENT
STATE OF TEXAS )
) KNOW ALL MEN BY THESE PRESENTS
COUNTY OF TAYLOR )
THAT, Ray L., Inc., whose address is 4810 Derrick Dr., Abilene, Texas
79608 (hereinafter referred to as "Assignor"), for and in consideration of the
sum of Ten and No/100 Dollars cash in hand paid, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged
and confessed, has bargained, sold, transferred, assigned and conveyed and by
these presents does hereby bargain, sell, transfer, assign and convey unto
NATURAL GAS TECHNOLOGIES, INC., whose address is 16775 Addison Rd., Suite
300, Dallas, Texas 75248, (hereinafter referred to as "Assignee"), the
following, (altogether referred to as the "interest"):
A. All of the Assignor's interest in the oil, gas and mineral leases
particularly described or referred to on Exhibit "A" (the "leases"), and
the lands described in Exhibit "A", covered thereby, and all of
Assignor's interest in (I) all pooling or utilization agreements,
declarations or orders covering in whole or in part any of the leases,
insofar as it covers the lands and (ii) all rights, options, title and
interest granting Assignor the right to obtain or otherwise earn oil, gas
and mineral leasehold estates within the lands;
B. All of Assignor's interest in and to the oil and gas wells located
on the said leases, and all Assignor's interest in and to fixtures,
equipment, gathering systems, pipelines, tubing, rods, pumps, tanks,
casing, supplies and personal property now located on the leases, or
appurtenant thereto or used in connection with production, treatment or
sale of any hydrocarbons produced from the lease;
C. All of Assignor's interest in all permits, licenses, servitudes,
rights-of-way, orders, gas purchase and sale agreements, gas
transportation agreements, crude purchase and sale agreements, operating
agreements, options, leases of equipment or facilities, and other
contracts or agreements that are appurtenant to or used in connection
with the production, treatment or sale of hydrocarbons produced from
the lease;
D. Without limiting the foregoing, all of Assignor's right, title and
interest in and to (i) the lease and the wells insofar as they cover the
lands as to the specified depths and (ii) all oil, gas and other
minerals, leasehold interests, working interests, overriding royalty
interest, production payment, net profits interest or other rights of
whatever character insofar as the same cover or affect the lands as to
the specified depths; and,
This Assignment of Oil, Gas and Mineral Lease and Bill of Sale of Interests in
Wells and Equipment (hereinafter referred to as this "Assignment") is made and
accepted expressly subject to the following reservations, terms, covenants and
conditions, to-wit:
1. REPRESENTATIONS OF ASSIGNOR:
A. This Assignment has been duly executed and delivered by Assignor
and constitutes a legal, valid and binding obligation of Assignor,
enforceable in accordance with its terms and at the closing of all
documents and instruments required hereunder to be executed and delivered
by Assignor shall have been duly executed and delivered and will
constitute legal, valid and binding obligations of Assignor in accordance
with their terms, except as may be limited by laws relating to creditors'
rights and bankruptcy.
B. Assignor is the lawful record and beneficial owner of the
interests, free and clear of all liens, pledges, and encumbrances.
C. All proceeds of production attributable to the interests are
currently being paid directly to Assignor or its authorized agent without
the furnishing of indemnity other than the customary warranty contained
in the division orders, transfer orders or gas sale contracts, and no
material portion of such proceeds are being held in suspense.
D. There are no preferential purchase rights in favor of third
parties with respect to the interests, and there are no necessary third
party consents, permissions, or approvals required for Assignor to
execute and deliver this Assignment.
E. To the best knowledge of Assignor, there is no claim, suit,
action, proceeding or formal investigation pending or threatened against
Assignor relating to the interests or which seeks to enjoin Assignor from
selling, assigning or transferring any or all of the interests.
2. WARRANTY: This Assignment is made with special warranty of title by,
through and under the Assignor, but not otherwise. Assignee shall be entitled
to full substitution and subrogation in and to all covenants and warranties by
Assignor's predecessors in title with full subrogation of all rights accruing
under statutes of limitation or prescription and all rights of action on
warranty on former owners of the interests.
ADDITIONALLY, ANY AND ALL EQUIPMENT, PERSONAL PROPERTY, AND WELLS TO BE
CONVEYED HEREUNDER, ARE CONVEYED WITHOUT WARRANTY OR REPRESENTATION OF ANY
KIND AS TO THE CONDITION, QUALITY, QUANTITY, OR WEIGHT, AND ASSIGNEE DOES
HEREBY ACCEPT SUCH EQUIPMENT, PERSONAL PROPERTY, AND WELLS ON AN "AS-IS,
WHERE-IS" BASIS AND WITHOUT ANY EXPRESS OR IMPLIED WARRANTY OF FITNESS FOR ANY
KNOWN PURPOSE, MERCHANTABILITY, OR OF ANY OTHER KIND.
3. EFFECTIVE DATE: This Assignment of Oil, Gas and Mineral Leases and Bill
of Sale of Interest in Wells and Equipment shall be effective as of the 1st
day of April, 1997, at 7:00 a.m. local time, Abilene, Texas, ("effective
date").
4. OPERATIONS AFTER THE EFFECTIVE DATE; PRORATION OF PRODUCTION AND
EXPENSES: Assignor shall be responsible for payment of and agrees to pay all
expenses incurred with respect to the interests prior to the effective date.
Assignee shall be responsible for payment of all expenses incurred with
respect to the interests after the effective date. "Expenses" under this
paragraph shall include any expenses incurred in the operation, protection, or
maintenance of the interests.
All proceeds from the sale of production, and any accounts receivable
balances, funds held in suspense or escrow, any of which are attributable to
production prior to the effective date, shall be the property of Assignor.
All production from oil and gas wells, and all proceeds from the sale thereof
after the effective date shall be the property of the Assignee.
5. TAXES:
A. All 1997 property taxes shall be the responsibility of the
Assignee.
B. Sales taxes, documentary stamp taxes, transfer taxes, and other
similar taxes resulting from the acquisition of the interests shall be
paid by the Assignee. Assignee shall remit all such taxes which result
from the sale, directly to the appropriate taxing agency.
6. BILL OF SALE: To the extent necessary or required by applicable law,
this instrument shall constitute a bill of sale of the equipment, fixtures and
all other personal property conveyed hereunder.
7. PLUGGING OBLIGATIONS: Assignee expressly assumes the obligations, and
shall indemnify Assignor from any claim, cause of action, liability, damage
and expense (including attorney's fees) resulting from Assignee's failure to
plug and abandon the wells and wellbores located upon the lands in accordance
with the applicable regulations and to restore the surface in accordance with
the terms of the applicable lease.
8. MISCELLANEOUS:
A. The paragraph headings used in this Assignment are inserted for
convenience only and shall not be regarded in construing this Assignment.
B. If any provision of this Assignment is held invalid, such
invalidity shall not affect the remaining provisions.
C. This Assignment is made free and clear of any arrangement which is
treated as a partnership for federal income tax purposes.
D. The parties hereto do hereby agree to do such further acts or
execute such further documents as may reasonably be required to properly
create or confirm title to the interests or to effectuate the transfer of
in and to the interests.
E. This Assignment may be executed in multiple counterparts, each of
which shall constitute an original and, all of which, when construed
together, shall constitute but one and the same instrument. The executed
signature and acknowledgement pages of each counterpart may be joined
together with a single copy of the body hereof for recording purposes.
TO HAVE AND TO HOLD the same unto the Assignee, its successors and
assigns forever.
The terms, covenants and conditions hereof shall be binding upon and
shall inure to the benefit of the Assignor and Assignee, their respective
successors and assign, and shall attach to and run with the interests and with
each transfer or assignment thereof.
WITNESS THE EXECUTION HEREOF on the date of acknowledgements, but
effective as of the 1st day of April, 1997 at 7:00 a.m. local time, Abilene,
Texas.
Ray L., Inc.
/S/ RAY BERRY
Ray Berry, President
/S/ DEAN BERRY
Dean Berry, Secretary
STATE OF TEXAS )
)
COUNTY OF TAYLOR )
This instrument was acknowledged before me on this ____ day of _________,
by Ray Berry, known to me to be President of Ray L., Inc., and acting in that
capacity, but effective on the date above stated.
____________________________________
Notary Public
STATE OF TEXAS )
)
COUNTY OF TAYLOR )
This instrument was acknowledged before me on this ____ day of _________,
by Dean Berry, known to me to be Secretary of Ray L., Inc., and acting in that
capacity, but effective on the date above stated.
____________________________________
Notary Public
Exhibit 10.14
CONTRACT FOR PURCHASE OF
OIL & GAS PROPERTIES
STATE OF TEXAS }
}KNOW ALL MEN BY THESE PRESENTS:
COUNTY OF DALLAS }
That this Contract for Purchase of Oil & Gas Properties made and entered
into on the 1st day of April, 1997, by and between RAY L, INC., whose address
is 4810 Derrick Dr., Abilene, Texas 79608 (hereinafter referred to as
"Seller"), and NATURAL GAS TECHNOLOGIES, INC., whose address is 16775 Addison
Road, Suite 300, Dallas, Texas 75248, (hereinafter referred to as "Buyer"):
W I T N E S S E T H
Buyer agrees to pay Seller's cost in the Frerich #1 Re-entry Well which
was unsuccessful, in the amount of $18,000.00, totalling 50% of cost.
Buyer shall issue to Seller 120,000 shares, valued at $7.00 per share,
for all of Seller's rights and interest in the Wilde #1 Well, and the Jansa,
Frerich, Halfmann, Lange, Bryan and McNeill Leases.
Buyer agrees to assign an Overriding Royalty to Seller totalling the
difference of the Net Revenue of the lease, less 81.5% Net Revenue, on all
leases excepting the Wilde #1 Well, which shall be 4.375% Net Revenue
Interest. All Overriding Royalties shall revert to Buyer effective the date
the shares issued to Seller are registered and legally tradeable.
Buyer agrees to give Seller a first right of refusal to purchase all oil
produced on properties covered by this agreement.
WITNESS THE EXECUTION HEREOF on the date of acknowledgements, but
effective as of April 1, 1997 at 7:00 a.m. local time, Dallas, Texas.
RAY L., INC. NATURAL GAS TECHNOLOGIES, INC.
/S/ RAY BERRY /S/ BRENT A. WAGMAN
BY: Ray Berry, President BY: Brent A. Wagman, President
STATE OF TEXAS )
)
COUNTY OF DALLAS )
This instrument was acknowledged before me on this 3rd
day of April 1997, by Ray Berry, known to me to be President of Ray
L., Inc., and acting in that capacity, but effective on the date above stated.
/S/ MARGARET F. SWINNEY
Notary Public
Margaret F. Swinney
My Commission Exp. 10-23-00
STATE OF TEXAS )
)
COUNTY OF DALLAS )
This instrument was acknowledged before me on this 3rd
day of April , 1997 by Brent A. Wagman, known to me to be President
of Natural Gas Technologies, Inc., and acting in that capacity, but effective
on the date above stated.
/S/ MARGARET F. SWINNEY
Notary Public
Margaret F. Swinney
My Commission Exp. 10-23-00
Exhibit 10.15
CONTRACT FOR PURCHASE OF
OIL & GAS PROPERTIES
STATE OF TEXAS )
) KNOW ALL MEN BY THESE PRESENTS:
COUNTY OF DALLAS )
That this Contract for Purchase of Oil & Gas Properties made and entered
into on the 30th day of May, 1997, by and between BRENT A. WAGMAN, whose
address is 16775 Addison Road, Suite 300, Dallas, Texas 75248 (hereinafter
referred to as "Seller"), and NATURAL GAS TECHNOLOGIES, INC., whose address is
16775 Addison Road, Suite 300, Dallas, Texas 75248, (hereinafter referred to
as "Buyer"):
W I T N E S E T H
Buyer shall issue to Seller an "Option" to purchase 100,000 shares, at
$5.00 per share, and $200,000.00 in the form of a note payable, for all of
Seller's rights and interest in the Wilde #1 Well, Halfmann Well and Lease,
Lange Well and Lease, and the Jansa, Frerich, Bryan and McNeill Leases.
WITNESS THE EXECUTION HEREOF on the date of acknowledgements, but
effective as of May 30, 1997 at 7:00 a.m. local time, Dallas, Texas.
/S/ BRENT A. WAGMAN
Brent A. Wagman
STATE OF TEXAS )
)
COUNTY OF DALLAS )
This instrument was acknowledged before me on this 30th day of May, 1997
by Brent A. Wagman, but effective on the date above stated.
/S/ MARGARET F. SWINNEY
Notary Public
Commission Expires: 10-23-00
Exhibit 10.15
ASSIGNMENT OF OIL, GAS AND MINERAL LEASES,
AND BILL OF SALE OF INTERESTS IN WELL AND EQUIPMENT
STATE OF TEXAS )
) KNOW ALL MEN BY THESE PRESENTS
COUNTY OF DALLAS )
THAT, Brent A. Wagman, whose address is 16775 Addison Rd., #300, Dallas,
TX 75248 (hereinafter referred to as "Assignor"), for and in consideration of
the sum of Ten and No/100 Dollars cash in hand paid, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged and confessed, has bargained, sold, transferred, assigned and
conveyed and by these presents does hereby bargain, sell, transfer, assign and
convey unto NATURAL GAS TECHNOLOGIES, INC., whose address is 16775 Addison
Rd., Suite 300, Dallas, Texas 75248, (hereinafter referred to as "Assignee"),
the following, (altogether referred to as the "interest"):
A. All of the Assignor's interest in the oil, gas and mineral leases
particularly described or referred to on Exhibit "A" (the "leases"), and
the lands described in Exhibit "A", covered thereby, and all of
Assignor's interest in (i) all pooling or utilization agreements,
declarations or orders covering in whole or in part any of the leases,
insofar as it covers the lands and (ii) all rights, options, title and
interest granting Assignor the right to obtain or otherwise earn oil, gas
and mineral leasehold estates within the lands;
B. All of Assignor's interest in and to the oil and gas wells located
on the said leases, and all Assignor's interest in and to fixtures,
equipment, gathering systems, pipelines, tubing, rods, pumps, tanks,
casing, supplies and personal property now located on the leases, or
appurtenant thereto or used in connection with production, treatment or
sale of any hydrocarbons produced from the lease;
C. All of Assignor's interest in all permits, licenses, servitudes,
rights-of-way, orders, gas purchase and sale agreements, gas
transportation agreements, crude purchase and sale agreements, operating
agreements, options, leases of equipment or facilities, and other
contracts or agreements that are appurtenant to or used in connection
with the production, treatment or sale of hydrocarbons produced from the
lease;
D. Without limiting the foregoing, all of Assignor's right, title and
interest in and to (i) the lease and the wells insofar as they cover the
lands as to the specified depths and (ii) all oil, gas and other
minerals, leasehold interests, working interests, overriding royalty
interest, production payment, net profits interest or other rights of
whatever character insofar as the same cover or affect the lands as to
the specified depths; and,
This Assignment of Oil, Gas and Mineral Lease and Bill of Sale of Interests in
Wells and Equipment (hereinafter referred to as this "Assignment") is made and
accepted expressly subject to the following reservations, terms, covenants and
conditions, to-wit:
1. REPRESENTATIONS OF ASSIGNOR:
A. This Assignment has been duly executed and delivered by Assignor
and constitutes a legal, valid and binding obligation of Assignor,
enforceable in accordance with its terms and at the closing of all
documents and instruments required hereunder to be executed and delivered
by Assignor shall have been duly executed and delivered and will
constitute legal, valid and binding obligations of Assignor in accordance
with their terms, except as may be limited by laws relating to creditors'
rights and bankruptcy.
B. Assignor is the lawful record and beneficial owner of the
interests, free and clear of all liens, pledges, and encumbrances.
C. All proceeds of production attributable to the interests are
currently being paid directly to Assignor or its authorized agent without
the furnishing of indemnity other than the customary warranty contained
in the division orders, transfer orders or gas sale contracts, and no
material portion of such proceeds are being held in suspense.
D. There are no preferential purchase rights in favor of third
parties with respect to the interests, and there are no necessary third
party consents, permissions, or approvals required for Assignor to
execute and deliver this Assignment.
E. To the best knowledge of Assignor, there is no claim, suit,
action, proceeding or formal investigation pending or threatened against
Assignor relating to the interests or which seeks to enjoin Assignor from
selling, assigning or transferring any or all of the interests.
2. WARRANTY: This Assignment is made with special warranty of title by,
through and under the Assignor, but not otherwise. Assignee shall be entitled
to full substitution and subrogation in and to all covenants and warranties by
Assignor's predecessors in title with full subrogation of all rights accruing
under statutes of limitation or prescription and all rights of action on
warranty on former owners of the interests.
ADDITIONALLY, ANY AND ALL EQUIPMENT, PERSONAL PROPERTY, AND WELLS TO BE
CONVEYED HEREUNDER, ARE CONVEYED WITHOUT WARRANTY OR REPRESENTATION OF ANY
KIND AS TO THE CONDITION, QUALITY, QUANTITY, OR WEIGHT, AND ASSIGNEE DOES
HEREBY ACCEPT SUCH EQUIPMENT, PERSONAL PROPERTY, AND WELLS ON AN "AS-IS,
WHERE-IS" BASIS AND WITHOUT ANY EXPRESS OR IMPLIED WARRANTY OF FITNESS FOR ANY
KNOWN PURPOSE, MERCHANTABILITY, OR OF ANY OTHER KIND.
3. EFFECTIVE DATE: This Assignment of Oil, Gas and Mineral Leases and Bill
of Sale of Interest in Wells and Equipment shall be effective as of the 1st
day of April, 1997, at 7:00 a.m. local time, Abilene, Texas, ("effective
date").
4. OPERATIONS AFTER THE EFFECTIVE DATE; PRORATION OF PRODUCTION AND
EXPENSES: Assignor shall be responsible for payment of and agrees to pay all
expenses incurred with respect to the interests prior to the effective date.
Assignee shall be responsible for payment of all expenses incurred with
respect to the interests after the effective date. "Expenses" under this
paragraph shall include any expenses incurred in the operation, protection, or
maintenance of the interests.
All proceeds from the sale of production, and any accounts receivable
balances, funds held in suspense or escrow, any of which are attributable to
production prior to the effective date, shall be the property of Assignor.
All production from oil and gas wells, and all proceeds from the sale thereof
after the effective date shall be the property of the Assignee.
5. TAXES:
A. All 1997 property taxes shall be the responsibility of the
Assignee.
B. Sales taxes, documentary stamp taxes, transfer taxes, and other
similar taxes resulting from the acquisition of the interests shall be
paid by the Assignee. Assignee shall remit all such taxes which result
from the sale, directly to the appropriate taxing agency.
6. BILL OF SALE: To the extent necessary or required by applicable law,
this instrument shall constitute a bill of sale of the equipment, fixtures and
all other personal property conveyed hereunder.
7. PLUGGING OBLIGATIONS: Assignee expressly assumes the obligations, and
shall indemnify Assignor from any claim, cause of action, liability, damage
and expense (including attorney's fees) resulting from Assignee's failure to
plug and abandon the wells and wellbores located upon the lands in accordance
with the applicable regulations and to restore the surface in accordance with
the terms of the applicable lease.
8. MISCELLANEOUS:
A. The paragraph headings used in this Assignment are inserted for
convenience only and shall not be regarded in construing this Assignment.
B. If any provision of this Assignment is held invalid, such
invalidity shall not affect the remaining provisions.
C. This Assignment is made free and clear of any arrangement which is
treated as a partnership for federal income tax purposes.
D. The parties hereto do hereby agree to do such further acts or
execute such further documents as may reasonably be required to properly
create or confirm title to the interests or to effectuate the transfer of
in and to the interests.
E. This Assignment may be executed in multiple counterparts, each of
which shall constitute an original and, all of which, when construed
together, shall constitute but one and the same instrument. The executed
signature and acknowledgement pages of each counterpart may be joined
together with a single copy of the body hereof for recording purposes.
TO HAVE AND TO HOLD the same unto the Assignee, its successors and
assigns forever.
The terms, covenants and conditions hereof shall be binding upon and
shall inure to the benefit of the Assignor and Assignee, their respective
successors and assign, and shall attach to and run with the interests and with
each transfer or assignment thereof.
WITNESS THE EXECUTION HEREOF on the date of acknowledgements, but
effective as of the 1st day of May, 1997 at 7:00 a.m. local time, Dallas,
Texas.
/S/ BRENT A. WAGMAN
Brent A. Wagman
STATE OF TEXAS )
)
COUNTY OF DALLAS )
This instrument was acknowledged before me on this 30th day of
May , by Brent A. Wagman, but effective on the date above stated.
/S/ MARGARET F. SWINNEY
Notary Public
EXHIBIT "A"
50% Working interest (41.2194% Net Revenue Interest) in the Wilde #1 well
located on the Jansa Lease described below.
50% Working Interest in and to the Jansa, Frerich, Halfman, Lange, Bryan, and
McNeil leases all located in the county of Runnels, State of Texas, described
as follows, to-wit:
Jansa Lease Recorded in Vol.137 Pg.540 Runnels County
Being 224-1/2 acres of land in Block No. 14, a subdivision of the Burnet
County School Land Survey No. 271, Abstract No. 19, Runnels County, Texas, and
being a part of a tract of 353-1/2 acres conveyed by J. A. Haley to Thomas
Lilly by Deed dated May 23, 1901, recorded in Vol. 29, Pg. 127, Deed Records,
Runnels County, Texas, and being more particularly described by metes and
bounds as follows:
BEGINNING at the Northwest corner of the said 353-1/2 acre tract out of
Block No. 14 subdivision of said survey;
THENCE South 0 deg. 08' West with the West line of said 353-1/2 acre
tract 1481 varas;
THENCE South 89 deg. 11' East 1114-4/10 varas;
THENCE North 1 deg. 08' East 809-8/10 varas;
THENCE North 88 deg. 15' West 595-3/10 varas;
THENCE North 0 deg. 19' East 652-7/10varas;
THENCE North 88 deg. 10' West 535-7/10 varas to the PLACE OF
BEGINNING, and being the same land described as 213-1/2 acres in the deed
executed by Frank F. Wier to J. G. Douglass and Jennie Douglass, now of
record in Vol. 122, Pg. 365, Deed Records of Runnels County, Texas.
Lange Lease recorded in Vol. 137 Pg. 536 Runnels County
Being 393 acres, comprising 42-7/10 acres of Block 15 and 350-3/10 acres
of Block No. 10, subdivisions of the Burnet County School Land Survey No. 271,
Abstract No. 19, and situated about 17 miles North 50 deg. West from
Ballinger, and described by metes and bounds as follows:
BEGINNING at a corner fence post in the West side of a 60-foot road and
the South side of a 37-2/10-foot road and also being 154 varas East and 3
varas South of the Northwest corner of Block No. 15 and the Northeast corner
of Black No. 10 of the subdivision of the Burnet County School Land Survey No.
271;
THENCE with the West side of said 60-foot road as follows:
South 1280-8/10 varas, South 22 deg. 35' West 83-1/0 varas, and
South 0 deg. 4' East 272-7/10 varas to corner fence post;
THENCE with fence North 89 deg. 50' West 1417-1/10 varas to corner fence
post;
THENCE with fence North 0 deg. 23' West 271-4/10 varas to corner fence
post;
THENCE with fence North 89 deg. 47' East 99-2/10 varas to corner fence
post;
THENCE with fence North 0 deg. 4' West 1354-3/10 varas to the South side
of a 37-2/10 foot road;
THENCE with the South side of said road East 1353-9/20 varas to the place
of beginning, and being the same land described in the deed executed by
R. G. Erwin, et ux, to Anton J. Lange, et ux, of record in Volume 216,
Page 20, Deed Records of Runnels County, Texas;
SAVE AND EXCEPT from the 393 acres described above the West 1/2 of said
acreage. This lease covers the E/2 only.
Frerich Lease, Recorded in Vol. 134, Page 687, Runnels County
FIRST TRACT: Being 100 acres of land, more or less, out of Block No. 11,
a subdivision of the Burnett County School Land Survey No. 271, Abstract No.
19, Patented to Burnett County, September 21, 1860, by Patent No. 280, Volume
16, described by metes and bounds as follows:
BEGINNING at the S. E. corner of Block No. 11, subdivision of said
Burnett County School Survey;
THENCE North with the E. B. line of said Block No. 11, a distance of 594
varas;
THENCE West 950 varas;
THENCE South 594 varas to a stake in S.B. line of said Block No. 11;
THENCE East 950 varas to the place of beginning;
and, being the same land conveyed by W. R. Sadler to R. B. Hambright by deed
dated September 21, 1909, and recorded in Deed Records of Runnels County,
Texas in Volume 72, Page 249.
SECOND TRACT: Being 145 acres of land, more or less, out of Block No.
11, a subdivision of the Burnett County School Land Survey o. 271, Abstract
No. 19, Patented to Burnett County, September 21, 1860, by Patent No. 280,
Volume 16, described by metes and bounds as follows:
BEGINNING varas North of the SE corner of said Block No. 11;
THENCE North 861 varas;
THENCE West 950 varas;
THENCE South 861 varas;
THENCE East 950 varas to the place of BEGINNING;
and, being the same land conveyed by W. T. Dorsett, et ux, to R. B. Hambright
by deed dated March 23, 1920, and recorded in the Deed Records of Runnels
County, Texas, in Volume 111, Page 313.
Halfmann Lease, Recorded in Vol. 137, Page 70, Runnels County
Being 182 acres of land out of the 250 acre tract conveyed to J. T.
Snellgrove by J. L. Hughes and wife, deed dated September 20th, 1899; said
250 acre tract being a part of Blocks 10,11, 14, and 15 of the subdivision of
Burnett County School Land Survey, known as Abstract No. 19, patented to
Burnett County on September 21, 1860, per Letters Patent No. 280, Volume No.
16, Survey No. 271; said 182 acres described by metes and bounds as follows:
- -
BEGINNING at the original Southeast corner of said 250 acre tract;
THENCE north 728.4 varas to the Southeast corner of the 68 acre tract
conveyed by Joe Snellgrove to J. W. Snellgrove by deed dated October 8th,
1929;
THENCE West with South line of said J. W. Snellgrove tract 1410 varas to
Southwest corner of same and the Northwest corner of this tract;
THENCE South 728 varas to Southwest corner of said 250 acre tract and the
Southwest corner of this tract;
THENCE East with the South line of said 250 acre tract 1410 varas to the
place of beginning.
Bryan Lease, Recorded in Vol. 136, Page 527, Runnels County
Being 111 acres of land of the Burnett County school Land Survey No. 271,
Abst. No. 19, comprising 71 acres of Block No. 13 and 401 acres of Block 14,
Subdivision of said Survey, and being the same land described in the deed
executed by W. W. Roberts and wife, Edna E. Roberts to H. A. Bryan, now of
record in Vol. 124, Page 526, Deed Records of Runnels County, Texas.
McNeill Lease, Runnels County
1st Tract: 150 acres out of H&GN RR Co. Survey No 5, Abst. No. 272, and
C. H. Willingham Survey No. 6, Abst. No. 736, known as Block No. 38, of the H.
C. Wylie Ranch and described by metes and bounds as beginning in the E. line
of Burnett Co. School Land Survey, the SW cor. of Blk. 37, of said Ranch;
THENCE, S 1147 vrs;
THENCE, E 738-1/3 vrs. to SW cor. of Blk. No. 39;
THENCE, N 1147 vrs. to SW cor of Blk. No/. 36;
THENCE, W 738-1/3 vrs. to the beginning.
2nd Tract: 8 acres out of Blk. No. 37, Subd. of Wm. H. Smith Survey No.
599, Abst. 719;
3rd Tract: 139-6/10 acres out of Blk. No. 37, subdivision of H & GN RR
Co. Survey No. 5, Abst. No. 272, said second and third tracts comprising
147-6/10 acres of said land and described together by metes and bounds as
BEGINNING at the SW corner of Block No. 34 and SE corner of Bock No. 35;
THENCE, S 1130 vrs to stone in E. line of said Burnett County School Land
Survey;
THENCE, E. 738-1/3 vrs. to SW cor. of Block No. 36;
THENCE, N 1130 vrs to NW corner of Block No. 36;p
THENCE, W 738-1/3 vrs. to the beginning, save and except 1-1/2 acres out
of the NW corner granted for church purposes. And being the same land
conveyed to J. T. Stevenson and I. McNeill by T. J. Tubbs et ux, by deed dated
the 15th day of Sept. 1920, and shown of record in Vol. 112, Page 625, Deed
Records of Runnels County, Texas. And being the same land conveyed to the
Federal Land Bank by Ira McNeill et al by Deed of Trust dated the 7th day of
March 1922, and shown of record in Vol. 20, Page 608, Deed of Trust Records of
Runnels County, Texas. Reference to said deeds are here made for a more
complete description of the land covered by this lease.
Exhibit 10.16
ASSIGNMENT OF OIL AND GAS LEASE
STATE OF TEXAS }
} KNOW ALL MEN BY THESE PRESENTS
COUNTY OF CROCKETT }
THAT, WHEREAS, on July 23, 1997, J. B. Miller and wife, Ethel Miller and
Robert Eugene Miller, individually and as Attorney-in-Fact for Vicky Pearce
Miller, as Lessors, did execute and deliver a certain Oil and Gas Lease to
EXP, Inc., covering the following described land in Crockett County, Texas,
to-wit:
All that certain lot, tract, or parcel of land in
Crockett County, Texas, being described as the East Half
of Survey 30, Block 000, original grantee, J. Metcalf,
Certificate 648, Abstract 4526, containing 640 acres and
the West half of Survey 30, Block 00-0, original grantee,
J. Metcalf, Certificate 648, Abstract 4296, containing
640 acres and all being situated in Crockett County,
Texas;
and which lease is duly recorded in Vol. 546, Page 757, of the Official Public
Records of Crockett County, Texas to which reference is here made for a
complete description of the property therein conveyed and for all of the terms
and conditions of such lease; and,
WHEREAS, such lease insofar as the interest hereinafter conveyed, is now
owned by EXP, Inc.;
NOW, THEREFORE, for good and valuable consideration of the sum of Ten &
no/100 dollars ($10.00) and other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the undersigned EXP, Inc.
does hereby grant, bargain, sell, transfer, assign and convey a 87.5% working
interest in an 80% net revenue interest of the total production, subject to
that certain Letter Agreement between EXP, Inc. and Natural Gas Technologies,
Inc., dated July 15, 1997, a copy of which is on file in the offices of NGT,
to NATURAL GAS TECHNOLOGIES, INC. , whose address is 16775 Addison Rd., Suite
300, Dallas, Texas 75248,
This assignment is made without warranty of title either expressed or
implied, and the terms hereof shall extend to the parties hereto, their heirs,
representatives, successors and assigns.
This instrument is signed this 24th day of July, 1997, and it shall be
effective at 7:00 a.m. on July 24, 1997.
EXP, Inc.
/S/ JERRY MOEN
Jerry Moen, President
STATE OF TEXAS }
}
COUNTY OF DALLAS }
This instrument was acknowledged before me on this 24TH day of July,
1997, by Jerry Moen, known to me to be President of EXP, Inc. and acting in
that capacity.
[UNREADABLE]
Notary Public
Exhibit 10.17
AGENT AGREEMENT
This Agent Agreement is made and entered into this 1st day of February,
1996 by and between NATURAL GAS TECHNOLOGIES, INC. located at 241 Pine Street,
Suite 9B, Abilene, Texas, 79601, hereinafter referred to as NGTI and
CONTINENTAL CAPITAL & EQUITY CORPORATION, INC., located AT 2301 Maitland
Center Parkway, Suite 100, Maitland, Florida, 32751, hereinafter referred to
as CCC.
RECITALS
WHEREAS, NGTI desires to engage CCC as agent, for the purpose of
consulting NGTI on identifying possible sources of financing, mergers, and
acquisitions.
WHEREAS, CCC possesses certain skills, knowledge, abilities and
considerable contacts throughout the corporate finance and financial public
relations industry, and
WHEREAS, CCC desires to assist NGTI with identification of potential
sources as outlined above, and with the negotiations associated with such
relations and the closing of such transactions.
NOW, THEREFORE, in consideration of the covenants and conditions
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties do hereby agree as
follows:
ARTICLE 1
TERM OF AGREEMENT
1.1 This Agent Agreement shall begin on the date shown and shall
extend and be operative and controlling until December 31, 1996. This term
shall be automatically extended for a six-month period if CCC provides NGTI
with a written offer to extend this project and is subject to the acceptance
and approval of the terms by NGTI. The parties may modify the term of the
Agent Agreement by complying with the provisions contained herein concerning
modifications. Except where otherwise expressly provided herein, all rights
and duties of the parties shall be extinguished upon termination of the Agent
Agreement.
ARTICLE II
NON-EXCLUSIVITY AND NON-CIRCUMVENTION
2.1 Non-Exclusivity. During the effective term of the Agent
Agreement, CCC shall be engaged by NGTI on a non-exclusive basis.
2.2 Non-Circumvention. Each party to this Agreement shall keep the
existence and the terms of this Agreement strictly confidential. Furthermore,
NGTI shall not attempt to contact any third party initially introduced by CCC
with the expressed purpose of circumventing CCC's participation in any
transaction pursuant to this Agreement.
ARTICLE III
CCC PERFORMANCE OBLIGATIONS
Upon execution of the Agent Agreement by both parties, CCC agrees to
employ its best efforts to perform the following:
3.1 To introduce sources, as outlined above, to NGTI, and assist in
the closing of such transactions.
3.2 NGTI must approve in advance, in writing, any and all matters
relating to, or otherwise effecting NGTI and/or its business, and for any such
matter to be effective against, or otherwise bind NGTI. CCC shall use every
effort to promptly inform all parties whom CCC may or shall contact, and shall
use every effort to make such parties aware, that no agreement, promise,
understanding, representation or inducement shall be effective against, or
otherwise bind NGTI unless or until such is approved in advance in a written
agreement signed by NGTI.
ARTICLE IV
NGTI PERFORMANCE OBLIGATIONS
NGTI agrees to pay CCC upon closing of any transaction associated with
this agreement as follows:
4.1 CCC shall be entitled to receive on the closing of any funding
transaction pursuant to this agreement, a fee of 5% of gross proceeds received
by the Company, payable in cash.
4.2 CCC shall be entitled to receive on the closing of any
merger/acquisition transaction pursuant to this agreement, a fee of 5% of the
gross value of the transaction, payable in shares of the surviving company.
4.3 NGTI further agrees to engage CCC to provide continued financial
relations support to include a 200,000 piece comprehensive direct mail
program, enhanced retail broker support, lead distribution and accountability,
mass media coverage, and standard financial public relations support at a cost
of $300,000 (Three Hundred Thousand Dollars). Terms of payment shall be as
follows: NGTI agrees to pay CCC a cash retainer of $25,000 (Twenty-five
Thousand Dollars). Said cash retainer shall be paid as follows: $10,000 (Ten
Thousand Dollars) upon execution of this agreement and the balance of $15,000
(Fifteen Thousand Dollars) shall be due upon the sixty-first (61st) day after
the execution of said contract, provided NGTI opts to continue participation
under such contract. Continued participation in this contract by NGTI after
said sixty (60) days shall be at the option of NGTI. The balance of the cost
shall be paid by the issuance of 500,000 shares of restricted stock, to CCC or
its assigns, issued in 100,000 (One Hundred Thousand) share blocks, to be held
in attorney's trust and delivered as follows:
(1) 100,000 Shares upon execution of this Agreement;
(2) 100,000 Shares upon completion of debt financing of $500,000;
(3) 100,000 Shares upon commencement of trading;
(4) 100,000 Shares 30 days following commencement of trading;
(5) 100,000 Shares upon actual drop of direct mail program.
In the event that a merger or acquisition is completed, the shares
referenced above will be converted to shares of the surviving public entity.
In the event that equity is received, CCC would receive its share in a form
that is marketable and/or tradable immediately or subject to the registration
rights hereinafter set forth.
ARTICLE V
REGISTRATION RIGHTS
5.1 To the extent that any of the shares issued pursuant to Article
IV above to CCC are not otherwise free trading or have not been held for an
adequate period of time to permit for sales pursuant to Rule 144, NGTI shall
be required to file a registration statement in whatever form is available to
it covering the resale of all such non-tradable shares within sixty days after
(a) becoming a fully reporting company pursuant to the Securities Exchange Act
of 1934, or (b) trading commences in its securities or the securities of its
successor in the case of a merger, whichever is last to occur. NGTI shall use
its best efforts to have said registration statement declared effective at the
earliest possible date and to maintain the effectiveness of said registration
statement for a period of not less than one year.
5.2 Piggyback Registration Rights. Should NGTI file a registration
statement pursuant to the Securities Act of 1933 for any purpose prior to the
required registration statement as set forth in Section 5.1 above, NGTI shall
give CCC thirty days written notice of its intent to file such a registration
statement and if during said thirty day period CCC shall elect to include the
shares issued to CCC pursuant to Section 4.3 in said registration statement,
NGTI shall in fact be required to register those securities subject only to a
refusal or cutback by NGTI's underwriter if the offering being registered is
underwritten.
ARTICLE VI
NO POWER OF AGENCY
6.1 No Power of Agency. Neither party shall have the power to bind
the other, nor shall any act by either party be immutable for any purpose to
the other.
ARTICLE VII
ENTIRE AGREEMENT
7.1 Entire Agreement. Other than any current and/or future
agreement(s) by and between the parties (which any said agreement(s) shall
continue in full force and effect independent of this Agreement), this Agent
Agreement sets forth the agreement and understanding of the parties hereto.
No other representation, promise or inducement has been made by any party that
is not embodied in this Agreement, and no party shall be bound by or liable
for any alleged representations, promise of inducement not so set forth.
ARTICLE VIII
MODIFICATION
8.1 Modification. This Agent Agreement may be modified or added to
from time to time, at the will of the parties, provided that all subsequent
modifications or additions must be in writing and executed by the parties,
noting the date thereof. No modifications or additions bearing a date earlier
than the last of the dates of execution below shall be valid. All future
modifications, to the extent that they conflict with the provisions contained
herein, shall be deemed as superseding the conflicting provisions set out
herein.
ARTICLE IX
ASSIGNMENT AND SUCCESSION
9.1 Assignability. CCC may assign any part of its rights under this
Agent Agreement with prior approval of NGTI and CCC shall have the right to
delegate its duties under this Agent Agreement with the prior consent of NGTI.
9.2 Successors. The Agent Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors and
their assigns.
ARTICLE X
INVALID PROVISION
10.1 Invalid Provision. In the event that any one or more provisions
of the Agent Agreement shall for any reason be duly held to be invalid,
illegal or unenforceable, such invalidity, illegality or unenforceability
shall not effect any other provision of the Agent Agreement.
ARTICLE XI
COUNTERPARTS
11.1 Counterparts. This Agent Agreement may be executed in
counterparts, and any number of counterparts signed in the agreement by the
parties hereto shall constitute a single original instrument.
ARTICLE XII
HEADINGS
12.1 Headings. The headings herein are for reference only and shall
not affect the construction of this Agent Agreement.
ARTICLE XIII
ARBITRATION
13.1 Arbitration. Any controversy or claim arising out of or
relating to the Agent Agreement, or the breach thereof, shall be settled by
arbitration in accordance with the commercial arbitration rules of the
American Arbitration Association, and judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof.
ARTICLE XIV
COLLECTIONS
14.1 Collections. Should either party incur any expenses in
enforcing provisions of the agreement, or in collecting any debt which may
arise from this Agreement, the other party shall be obligated to reimburse
said party for all reasonable costs and expenses incurred.
ARTICLE XV
GOVERNING LAW
15.1 Governing Law. The existence, validity, construction, operation
and effect of this Agent Agreement shall be determined in accordance with and
governed by the laws of the State of Florida, United States of America.
IN WITNESS WHEREOF, the parties, have carefully considered each provision
of the Agent Agreement, note their approval and acceptance hereof by executing
this Agent Agreement shall become effective, and the term of the Agent
Agreement shall begin, on the last day of execution hereunder.
CONFIRMED AND AGREED:
CONTINENTAL CAPITAL & EQUITY CORPORATION
/S/ JOHN MARION 9-4-97
DULY AUTHORIZED DATE
NATURAL GAS TECHNOLOGIES, INC.
/S/ BRENT A. WAGMAN 8-30-97
DULY AUTHORIZED DATE
Exhibit 10.18
EMPLOYMENT CONTRACT
NATURAL GAS TECHNOLOGIES, INC. (NGT) hereinafter referred to as "Employer"
whose address is 241 Pine Street, Suite 10-LA, Abilene, Texas 79601, and
Terrance Huston, hereinafter referred to as "Employee" whose address is 11535
Sundance Lane, Boca Raton, Florida 33438, agree to the following conditions of
employment:
Employee shall fill the position of President of a subsidiary of the Employer
to be formed for the express purpose of marketing and acquiring patents
related to the American Gasoline. Said position's duties are described in the
Job Description attached as Exhibit "B" and made a part of this Employment
Contract.
Employee shall be compensated for performance of said duties as follows:
1. Upon execution of this contract Employee shall receive 10,000
restricted shares of Employer's common stock.
2. Once the Employer has entered into an agreement to acquire a
publicly trading corporation suitable for a reverse merger by the Employer,
Employee shall initiate negotiations to acquire the controlling interest of
Interstate Chemical, Inc. (Interstate) (owner and assignee of the U.S. Patent
Application SN 447,563 Blended Gasolines). Negotiations shall be for the
swap of shares of the public company's stock and shares of Interstate's stock.
Employee shall bring to Employer's attention in writing any and all problems,
lawsuits, or conditions which may adversely affect Employer or its subsidiary
in the future. Failure to do so shall void this contract and all
considerations to be paid to Employee. Ownership of the stock from Interstate
may be taken in a different name other than that of the Employer's. Upon
successfully receiving legally binding consents from a majority of the
shareholders of Interstate, Employee shall received 50,000 shares of the
Employer's restricted common stock.
3. It is believed that currently there may be certain obstructions
preventing Interstate from selling or otherwise transferring ownership of the
patent. The Employee has represented that within his power is the special
ability to remove those obstructions or settle most all of the lawsuits in
which Interstate is currently involved. Upon the successful settlement of
those lawsuits or any other obstacles that may prevent the transfer of the
patent, Employer shall issue to Employee 100,000 shares of the Employer's
restricted common stock.
4. At this point, Employee shall set up a Board of Directors for
Interstate and arrange the sale of the patent to Employer or its designate or
subsidiary company of which Employee shall be President and in charge of all
manor of operations. At this point, the Employer shall issue to Employee
50,000 shares of the Employer's restricted common stock. Also, at this point,
the Employer shall guarantee 8 months salary based upon $70,000 per year.
Said salary shall be paid on a bi-monthly basis. Employee shall work full
time on behalf of the Employer or its subsidiary. Employer shall make
available up to $500,000 to start up the plant in Mobile, Alabama at this
time. Said $500,000 shall be administered by the NGT Corporate Treasurer and
made available to the subsidiary per a statement as to the use of funding as
submitted to the NGT Board of Directors by the 10th of each month. The
Employee's salary shall be exclusive of the $500,000. No additional funding
or salaries shall be guaranteed. From this point, all salary shall be paid
out of the revenue generated by the subsidiary company unless Employer's Board
of Directors extends the salary guarantee.
5. If Employee is successful in making the operation profitable in
less than eight months or is successful and funded a profitable sale of
500,000 net, then the Employee shall be given the option for the 100,000 share
of the Company's common stock at a price of $1.00 per share or 80% of the
market, whichever is less. Employee shall also be given a pay raise, as
determined by the Board of Directors, and a decision as whether to further
guarantee any payroll and extend this contract shall be made at this point by
the Employer's Board of Directors.
6. The Employer shall pay all reasonable expenses incurred with
respect to the negotiations, mailings, phone calls, travel and any other
reasonable expense items (no 1st class plane tickets, not more than $100.00
per night hotels, except New York City, not more than $75 per day for meals on
the road unless entertaining)
Once Employee has reached the point of obtaining the eight month guaranteed
salary, Employer, at its own expense, will provide the following:
A. Insurance:
a. Key man policy in the amount of $1,000,000 to benefit the Company
and only at the Company's option.
b. Health, life and accident for Employee and spouse, including
children from 0 to 21 years of age still living at home or attending
school.
B Business Expenses:
a. Business related travel expenses, this may be subject to limits set
by the Board of Directors at a later date.
b. Company vehicle and associated operating expenses in accordance with
Employer policies.
c. Bonus:
Year end bonus to be determined by the Board of Directors prior to the
annual stockholders meeting. A percentage of all franchise sales and
percentage of the Subsidiary company if spun off.
D. Moving/Relocation:
If relocation is required by the Employer, all reasonable moving expenses
are to be paid, with up to two weeks "prior to move expenses" allocated,
for locating quarters at new site. NGT will pay all realtor fees for
both buying and selling of the home. If the prior house does not sell
within 60 days after relocation, NGT will purchase the house at current
market value to be determined by 3 independent realtors. Salary will be
adjusted to compensate for cost of living increase, if any, due to
relocation.
E. Term:
The initial term of this contract shall be for a period of eight (8)
months at which time the Employer's Board of Directors shall vote to
either extend it for an additional four (4) years and for (4) months or
to terminate it.
F. Involuntary Termination Clause:
In the Event of involuntary termination, for which no cause of wrongdoing
or malfeasance on behalf of the Employee is cited, after the board of
Directors has agreed to continue it under point 5 above, the Employer and
Employee agree to the following conditions:
1. Contract payment in full for any un-expired term.
2. The Company will continue current insurance coverage for five (5)
years.
G. Other Provisions for Employment:
1. A Non Disclosure Statement is included as Exhibit "A" and a "Code of
Ethics" outlined as Exhibit "C". Employee shall sign both, and both
are made a part of this Employment Contract.
2. Employee agrees that during his employment with this Employer he
will work primarily for this Employer. Should Employee desire to
accent a position with any other entity, he shall first obtain the
written consent of the Employer. This clause shall in no way affect
Employee's current positions as listed below, but the listed
positions shall in no way take away from Employee's duties or time
needed for Employer or be in conflict with the goals and interests
of the Employer:
Atlantic Renaissance & its Subsidiaries & Affiliates.
H. Unsuccessful Venture:
A. Should the Employee be unsuccessful in acquiring the patent for the
Employer, or should the Employer be unsuccessful in its business, or
unprofitable, or should the Employer become bankrupt or file for
bankruptcy protection, the Employee agrees not to file a claim for
unpaid salaries against the Employer and this Contract shall become
null and void.
Should Employee be unable to perform the duties outlined in the Job
Description due to poor health or for other reasons, the Company shall have
the option to dismiss said Employee without triggering the involuntary
termination clause. The Company shall however, continue to pay Employee's
health insurance for five (5) years and 25% of Employee's last salary drawn.
The Employer (NGT) and Employee (Terrance Huston) fully understand and agree
to all conditions set forth in this agreement.
Should any alterations, grievances, misunderstandings or any disagreements or
claims arise with regard to any conditions or compensations that may or may
not have been met or due under this contract, both parties agree to settlement
by arbitration and to accept any settlement or ruling submitted by arbitration
rather than seeking relief through a court of law.
DATED: January 16, 1997
BY: /s/ Brent A. Wagman /s/ Terrance R. Huston
Natural Gas Technologies, Inc. Employee
Brent A. Wagman, President
/s/ Warren Donovan
Witness
* 3. Mr. Huston has the right to assign stock or stock options to Mr. Sherman
Kondis.
Exhibit "A"
NON DISCLOSURE AGREEMENT
This Agreement is made this 16 day of January, 1997 between Terrance Huston
(hereinafter the party and/or parties of the first part) and Natural Gas
Technologies, Inc. (hereinafter NGT) a corporation existing under the laws of
the State of Texas, located in Abilene, Texas.
WITNESSETH AS FOLLOWS:
WHEREAS, in order to ensure that the relationship is of mutual benefit to all
parties, the party and/or parties of the first part desire(s) to received and
NGT may disclose, certain confidential information of NGT related to the
business, products, technology, markets and other related data developed and
obtained by NGT.
NOW THEREFORE, for and in consideration of the mutual covenants and agreements
contained herein, and for the stock signing considerations paid by the
Employer, the parties agree as follows:
1. That all trade secrets, marketing plans, technical know-how, product
designs, blueprints, models, prototypes, performance data and other pertinent
information (all of such information and know-how hereinafter referred to as
"Technical Information") which is disclosed by NGT in connection with
negotiations or transactions between the parties shall be treated by the party
and/or parties of the first part as confidential and will not be disclosed to
any third party without the written consent of NGT.
2. "Confidential Information" means all information in the Subject
Technology supplies to the party and/or parties of the first part by or on
behalf of NGT pursuant to this agreement, except such information which:
(a) was in the public domain at the time it was disclosed;
(b) was in possession of the receiving party prior receipt thereof
from the other;
(c) is acquired by the party and/or parties of the first part from a
third party having no direct or indirect confidential obligation
to NGT with respect to such information.
3. The party and/or parties of the first part will limit access to
"Technical Information" to those individuals who reasonably require the same
and who are obligated to treat the same as confidential.
4. In the event "Technical Information is exchanged or transmitted in a
tangible form, including drawings, blueprints, data memoranda and written
information relating the same, the party and/or parties of the first part upon
request from NGT will promptly return such tangible form and any copies
thereof.
5. Nothing contained herein shall be construed to grant the party and/or
parties of the first part rights to "Technical Information" disclosed, except
as expressly set forth herein.
This Agreement shall constitute a binding contract upon all parties when
executed by the respective parties herein and shall be effective on the date
first above written and continue to be in effect for a period of three (3)
years subsequent to a written notice of termination by any party or parties to
this agreement.
/s/Terrance R. Huston Natural Gas Technologies, Inc.
/s/Brent A. Wagman
President
Exhibit "B"
JOB DESCRIPTION
TITLE: PRESIDENT - TO BE NAMED SUBSIDIARY
REPORTS TO: BOARD OF DIRECTORS
The position of President is many faceted and requires a great deal of
concentrated effort. Each of the following job requirements necessitate
accelerated movement on a common front.
1. Assist in any Stock Offerings and/or IPO.
A. Help define key Broker-Dealer organizations for Stock Offerings
an/or as market makers for the Employer's stock.
I. Help develop stock marketing plans.
II. Help and/or attend "road show", mailings and keep regular
direct contact.
III. Be active in promotion and follow-up of sales efforts.
2. Prepare and gain management approval for budgets for the implementation
of the following:
A. Action Steps for the start up of the Mobile, Alabama blending plant.
This shall include hiring of sales people and the buyers of raw
products. Train the sales people with regard to attracting new
customers for the Employer. Train the sales people with regard to
attracting new customers for the Company's products and how to keep
the customers purchasing.
B. Develop a marketing and pricing strategy for other facilities.
C. Develop a marketing and pricing strategy for the franchise program.
D. Develop a plan for expansion into key areas if investors for
franchising program are not found.
3. Develop a complete understanding of the following areas:
A. Governmental Regulations and Environmental Laws. A complete
documentation and understanding of State, Federal and International
Laws for automotive fuels.
B. Product Characteristics. An understanding of the chemical, blending
and performance characteristics of the various alternatives for the
blending process.
C. Markets. A definition of methods of distribution, pricing and
terms, size of markets and special requirements to those market
segments.
D. Franchising. Define the various State and International Laws as
they pertain to franchising.
4. Help develop a retail market:
A. Hire and train salespersons to represent the Company to the retail
gasoline stations and fleet operators and any other necessary
employees needed.
B. Make contracts with various government agencies regarding the
purchasing of fuel.
C. Assist in the development of additional locations for future
blending operations.
D. Maintain sales incentive programs for retailers and inside sales
people.
E. Oversee and manage all aspects of the sales and marketing of the
Company.
5. Develop and maintain at profitable levels sales of the company products.
6. Changes in Job Description. It is expressly understood that as time
moves forward and government regulations change, the specifics of this
job description may need to be expanded an/or changed. Therefore, the
Employer shall reserve the right to reasonable expansion or modification
of this job description.
Exhibit "C"
CODE OF ETHICS
The following list is comprised of specific ethical behavior the Employer
expects its employees to abide by including any Employee under contract.
1. Employee shall not make false representations that may reflect upon
the Employer's credibility.
2. Employee shall strictly follow the Employer's personnel policies and
Non Disclosure Agreement.
3. Employee shall not engage in lewd or mischievous conduct that may
reflect upon the Employer.
4. Employee shall not engage in deceitful acts that may reflect upon
the Employer.
5. Employee shall strive to disclose any problems or potential problems
to his superiors when he becomes knowledgeable of them.
6. Employee shall treat all associates with respect, dignity, honesty,
and integrity.
7. Employee shall engage in all business dealings with the Employer's
best interest at heart.
8. Employee shall treat all customers or potential customers with
courtesy and respect.
9. Employee shall abide by all Federal, State, Local and International
laws regarding their respective fair business and trade practices
and their securities laws.
10. Employee shall not engage in any discriminatory actions regarding
fellow employees, potential employees, customers and/or the public
at large.
Exhibit 10.19
April 15, 1996
The Board of Directors
Natural Gas Technologies, Inc.
241 Pine St., #10-LA
Abilene, TX 79601
Gentlemen:
Regarding monies due Wagman Petroleum, Inc. for the following:
Note on Production: $296,988.21
Loan to NGT: 82,996.52
___________
$379,984.73
It is requested that these monies due be converted into 189,994 share of
Natural Gas Technology, Inc. Common Stock at $2.00 per share, and issued to
the following:
Leota M. Loftin 64,076 shares
P. O. Box 195
Dundee, FL 33838 SS: ###-##-####
Darrell Denton 60,918 shares
13611 Hatchineha Rd.
Haines City, FL 33844 SS: ###-##-####
Sam Davis 65,000 shares
P. O. Box 53
Abilene, TX 79604 SS: ###-##-####
Issuance of these shares as indicated would constitute payment in full of the
monies now due to Wagman Petroleum, Inc.
Sincerely,
/S/ BRENT A. WAGMAN
Brent A. Wagman
President
BAW/ps
Exhibit 10.20
July 17, 1996
The Board of Directors
Natural Gas Technologies, Inc.
241 Pine St., #10-LA
Abilene, TX 79601
Gentlemen:
Regarding monies due me, Brent A. Wagman personally, for the following:
Original Loan: $11,847.00
Subsequent Loans: 41,475.00
__________
Loan to NGT: 53,332.00
__________
It is requested that these monies due be converted into 26,661 share of
Natural Gas Technology, Inc. Common Stock at $2.00 per share, and issued to
the following:
Vivian Waltbillig 26,661
11108 Haskell Dr.
Clermont, FL 34711 SS: ###-##-####
Issuance of these shares as indicated would constitute payment in full of the
monies now due to me personally.
Sincerely,
/S/ BRENT A. WAGMAN
Brent A. Wagman
BAW/ps
402 Southwest Drive
Clyde, TX 79510
Exhibit 10.21
PROMISSORY NOTE
Principal Amount $79,067.00 Dated 4/30/97
State of Texas
FOR VALUE RECEIVED, the undersigned hereby jointly and severally promise
to pay to the order of Wagman Petroleum, Inc., together with interest thereon
at the rate of 5% per annum on the unpaid balance. Said sum shall be paid in
the manner following:
All payments shall be first applied to interest and the balance to
principal. This note may be prepaid, at any time, in whole or in part,
without penalty. All prepayments shall be applied in reverse order of
maturity.
This not shall, at the option of any holder hereof, be immediately due
and payable upon the failure to make any payment due hereunder within 30 days
of its due date.
In the event this note shall be in default, and placed with an attorney
for collection, then the undersigned agrees to pay all reasonable attorney's
fees and costs of collection. All payments hereunder shall be made to such
address as may from time to time be designated by any holder hereof:
The rights of any holder hereof shall be cumulative and not necessarily
successive. This note shall take effect as a sealed instrument and shall be
construed, governed and enforced in accordance with the laws of the State of
Texas. The undersigned hereby execute this note as principal and not as
sureties.
Security: The only recourse the holder of this note shall have, shall be
the interests and only the interests outlined in Exhibit A.
NATURAL GAS TECHNOLOGIES, INC.
/S/ BRENT A. WAGMAN
Brent A. Wagman, President
/S/ MARGARET F. SWINNEY
Witness
Exhibit 10.22
PROMISSORY NOTE
Principal Amount $50,000.00 Dated 2/15/97
State of Texas
FOR VALUE RECEIVED, the undersigned hereby jointly and severally promise
to pay to the order of Brent A. Wagman, together with interest thereon at the
rate of 5% per annum on the unpaid balance. Said sum shall be paid in the
manner following:
All payments shall be first applied to interest and the balance to
principal. This note may be prepaid, at any time, in whole or in part,
without penalty. All prepayments shall be applied in reverse order of
maturity.
This not shall, at the option of any holder hereof, be immediately due
and payable upon the failure to make any payment due hereunder within 30 days
of its due date.
In the event this note shall be in default, and placed with an attorney
for collection, then the undersigned agrees to pay all reasonable attorney's
fees and costs of collection. All payments hereunder shall be made to such
address as may from time to time be designated by any holder hereof:
The rights of any holder hereof shall be cumulative and not necessarily
successive. This note shall take effect as a sealed instrument and shall be
construed, governed and enforced in accordance with the laws of the State of
Texas. The undersigned hereby execute this note as principal and not as
sureties.
Security: The only recourse the holder of this note shall have, shall be
the interests and only the interests outlined in Exhibit A.
NATURAL GAS TECHNOLOGIES, INC.
/S/ BRENT A. WAGMAN
Brent A. Wagman, President
/S/ MARGARET F. SWINNEY
Witness
Exhibit 10.23
PROMISSORY NOTE
Principal Amount $50,000.00 Dated 2/15/97
State of Texas
FOR VALUE RECEIVED, the undersigned hereby jointly and severally promise
to pay to the order of Warren Donohue, together with interest thereon at the
rate of 5% per annum on the unpaid balance. Said sum shall be paid in the
manner following:
All payments shall be first applied to interest and the balance to
principal. This note may be prepaid, at any time, in whole or in part,
without penalty. All prepayments shall be applied in reverse order of
maturity.
This not shall, at the option of any holder hereof, be immediately due
and payable upon the failure to make any payment due hereunder within 30 days
of its due date.
In the event this note shall be in default, and placed with an attorney
for collection, then the undersigned agrees to pay all reasonable attorney's
fees and costs of collection. All payments hereunder shall be made to such
address as may from time to time be designated by any holder hereof:
The rights of any holder hereof shall be cumulative and not necessarily
successive. This note shall take effect as a sealed instrument and shall be
construed, governed and enforced in accordance with the laws of the State of
Texas. The undersigned hereby execute this note as principal and not as
sureties.
Security: The only recourse the holder of this note shall have, shall be
the interests and only the interests outlined in Exhibit A.
NATURAL GAS TECHNOLOGIES, INC.
/S/ BRENT A. WAGMAN
Brent A. Wagman, President
/S/ MARGARET F. SWINNEY
Witness
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-END> APR-30-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 2,500,000
<OTHER-SE> (2,500,000)
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> (35,593)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (5,928)
<INCOME-PRETAX> (41,521)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (41,521)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
