SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
General Form For Registration of Securities of
Small Business Issuers
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
PIONEER OIL AND GAS
.......................................................................
(Name of Small Business Issuer in its charter)
Utah 87-0365907
............................................ .....................
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1206 West South Jordan Parkway
Unit B
South Jordan, Utah 84095-4551
............................................ ..................
(Address of principal executive offices) (Zip Code)
(801) 566-3000
Issuer's telephone number ............................................
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001
.......................................................................
(Title of class)
<PAGE>
PART I
This registration statement, including the information that may be
incorporated herein by reference, contains forward-looking statements including
statements regarding, among other items, the Company's business. These forward
looking-statements are subject to a number of risks and uncertainties, certain
of which are beyond the Company's control. Actual results could differ
materially from these forward-looking statements as a result of factors
described in this section and "Business Risks," including among others oil and
gas prices and the ability of the Company to effectively market its drilling
programs.
ITEM 1. DESCRIPTION OF BUSINESS
The Company
Pioneer Oil and Gas (the "Company") was organized on October 16, 1980
under the laws of the State of Utah. The Company's principal place of business
is located at 1206 West South Jordan Parkway, Unit B, South Jordan, Utah
84095-4551. The Company has primarily been engaged in the acquisition and
exploration of oil and gas properties in Utah, Wyoming, Colorado and Nevada.
The Company filed a Chapter 11 bankruptcy petition on February 19, 1997
and filed an Amended Plan of Reorganization (the "Plan") on June 11, 1998. The
United States Bankruptcy Court for the District of Utah, Central Division (the
"Court") entered an order approving the Plan on August 5, 1998. The Order that
granted the final decree was entered into on November 6, 1998. Twenty days after
the Order was mailed on November 26, 1998, the Company emerged from bankruptcy.
Prior to the Plan's implementation, the Company in June of 1998
effected a 10 for 1 reverse stock split of the Company's common shares to allow
the Company to raise capital from the sale of new shares to existing
shareholders. The Plan implemented by the Company and approved by the Court
combined the sale of some of the Company's assets along with the sale of its
common shares to existing shareholders. The capital raised by the Company was
used to pay unsecured creditors 100% of the first $500 of any unsecured
creditor's claim plus approximately 5.0% of the claim above $500.00. The
Company's principal secured creditor Zions Bank (the "Bank") agreed to the Plan
based on the Bank being repaid the full amount owed by the Company to the Bank
by December 1999. In September of 1999 the Company completed the sale of several
of its oil and gas assets and retired all the debt owed the Bank.
The Company has elected to file this Form 10-SB registration statement
on a voluntary basis in order to become a reporting company under the Securities
Act of 1934. The primary purpose for this filing is to allow the Company to
maintain its listing for trading on the OTC Electronic Bulletin Board (the
"Bulletin Board"). Current NASD rules being implemented are requiring the
Company be a reporting company under the Securities Exchange Act of 1934, for
the Company to maintain its Bulletin Board listing.
<PAGE>
The Business
The Company has focused its efforts over the years in acquiring oil and
gas properties from other companies selling producing wells and in acquiring new
oil and gas leases for the purpose of exploring for oil and gas. Leases have
also been acquired over the years for the purpose of reselling them at a profit
to other oil and gas companies.
Most of the Company's present production from oil and gas properties
was acquired from large oil companies selling properties they considered to be
marginal producers. The Company has found that it can operate these properties
at a profit. Presently, the Company operates 9 producing oil and gas wells in
Utah and Wyoming.
The Company also owns an interest in several non-operated oil and gas
wells and overriding royalty interests in oil and gas wells located in Utah,
Colorado, and Wyoming. An overriding royalty interest, is an interest in a well
that receives a percentage of the production from a well without paying any
operation expenses.
The Company over the last 3 years has focused most of its exploration
efforts in drilling exploratory wells in Wyoming and Nevada. Prior to drilling
an exploratory well a geological review of the prospective area is made by the
Company's staff to determine the potential for oil and gas. If an area is
determined to have promise the Company will attempt to acquire oil and gas
leases over the prospective area. The Company will then acquire geophysical data
(generally seismic and gravity data) to further evaluate the area. After the
evaluation of the geophysical data, if the area appears to contain significant
accumulations of oil and gas in the Company's opinion for the area, the Company
will market a drilling program to outside investors covering the Company's
leases. When the Company markets a drilling program its sells a portion of its
oil and gas leases over the prospect area along with obtaining a drilling
commitment from the parties purchasing the leases to drill a well on the
prospect area. A drilling program will generally allow the Company to recoup its
investment in the area with the Company also retaining an ongoing interest in
new wells to be drilled in the area.
The Company markets its drilling programs to other industry partners.
Drilling programs have been marketed by placing ads in industry journals,
attending trade shows and by traveling to the office of prospective partners. In
the past, the Company has sold drilling programs to major oil companies and
large independents and occasionally to individuals.
Presently, the Company has been seeking opportunities for coal bed
methane exploration in Wyoming, Utah and Colorado. The Company has been
acquiring oil and gas leases for coal bed methane drilling in the Powder River
Basin and is attempting to acquire other leases with coal bed methane potential
in Utah, Colorado and Wyoming.
Leases acquired for resale have been acquired in areas determined to be
prospective by the Company's staff. An area is determined to be prospective
based on a geological review of the area, drilling in the area and review of the
Company's geophysical data if available. Usually resale leases are acquired for
the purpose of selling at a profit along with the Company retaining an
overriding royalty interest in the leases sold.
<PAGE>
Competition
The oil and gas business is highly competitive. The Company competes
against numerous other companies, both major and independents, many with greater
financial resources and larger staffs than those available to the Company. In
the area that the Company competes there are over 100 competitors with no one
competitor dominating the area. The Company believes it can successfully compete
against other companies by focusing its efforts in Utah, Colorado, Wyoming and
Nevada and by pursuing oil and gas prospects that it develops internally with
its own staff. The Company has also been able to successfully compete in the
past for leases in areas that it has accumulated geological and geophysical
data.
Marketability
Presently, the marketability of the Company's crude oil has not posed a
problem for the Company. Crude oil can be easily sold wherever it is produced in
the states that the Company operates subject to the transportation cost. The
crude oil produced by the Company is transported either by trucking or pipeline.
On the other, natural gas can be more difficult to sell since transportation
requires a pipeline. In the areas that the Company is presently pursuing new
drilling activity for natural gas, other companies have been delayed up to a
year because of the unavailability of a pipeline. No assurance can be given that
natural gas wells drilled by the Company will be placed on line within a year
after the well is drilled and completed.
Business Risks
Oil and gas exploration and drilling involves a high degree of risk.
Oil and gas prices are subject to fluctuations and, as a consequence, no
assurance can be given that oil and gas prices will decrease, increase or remain
stable. There is no assurance that wells drilled on behalf of the Company will
obtain production or that even if production is obtained, such production will
allow the recovery of all or any part of the investment made by the Company in a
well.
There are other risks inherent in the oil and gas industry that are
encountered in drilling, completing, and producing oil and gas wells. These
risks include unusual or unexpected formations, pressures or other conditions,
blowouts and environmental pollution. The Company may incur losses due to
environmental hazards against which it cannot insure or which it elects not to
insure against because of high premium costs or other reasons. Consequently,
substantial uninsured liabilities to third parties may arise, the payment of
which could result in significant losses to the Company.
Governmental regulation is a significant business risk of an oil and
gas company because the industry becomes more regulated with time. The Company
is subject to federal, state and local laws, regulations and ordinances relating
to the production and sale of oil and gas. Some of the laws that the Company is
subject to include the Clean Air Act, the Clean Water Act, and Endangered
Species Act. For example, coal bed methane wells are being highly regulated for
disposing produced fresh water on the surface. The EPA is requiring that the
fresh water meet more stringent standards than before, which ultimately may
require the water be injected underground. Reinjecting the water will increase
the cost of production and in some cases make the drilling of wells
uneconomical.
Environmental regulations and taxes imposed by state governments in a
jurisdiction wherein producing oil and gas properties are located impose a
significant burden on the cost of production. Severance and ad valorem taxes in
Wyoming can amount to approximately 14% of the Company's gross production and if
the property is located on a Reservation the total tax burden by governmental
entities can amount to as much as 22% of the gross production. Governmental
regulation may also delay drilling in areas that have endangered species. Delays
<PAGE>
in drilling in the past have not imposed a significant cost to the Company,
however, no assurance can be given that in future the delays will not be more
expensive.
In the oil and gas industry there is always a possibility that there
will be a shortage of drilling rigs, casing pipe or other material not being
available, when needed for drilling, completing or operating wells. To date, the
Company has not encountered any significant difficulties in the areas it has
operated or intends to operate in the future, however, no assurance can be given
that this condition will remain unchanged.
Employees
The Company has a total of four full-time employees with the intention
of hiring a receptionist/secretary.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations -1999 Compared to 1998
Total revenue for fiscal year 1999 was $1,993,944 as compared to total
revenue for fiscal year 1998 of $1,084,592. The increase in revenue was due
primarily to the sales of non-performing oil and gas properties for which
Pioneer realized a net gain of $1,323,080. Oil and gas sales dropped from
$902,992 to $655,446 due entirely to reduced gas production. A decline in oil
production of 13 percent due to natural production declines was offset by 13
percent higher oil prices. Even though oil prices reached their lowest prices
since World War II (adjusted for inflation) in the first fiscal quarter of 1999,
prices rebounded sufficiently during the last quarter to still exceed prices the
Company received in fiscal 1998. Gas production declined 54 percent due to
natural declines in several properties and the fact that our Pilot gas property
and Badger Wash gas properties were shut in for most of the year. The Pilot gas
property was shut in due to down-hole problems and should resume production in
fiscal 2000 following an extensive work-over. The Badger Wash property was shut
in due to greater pipeline restrictions on low BTU gas. The property was one of
several sold during fiscal 1999 to raise working capital for the company.
Project and lease sales income dropped from $159,637 to $3,270 as the
Company sold off most of its resale leases to cover operating costs.
Costs of operations declined from $591,260 to $462,711. This item
includes all well operating expenses and any amounts paid to employees and other
interest owners for their interest in producing properties. The Company
instituted costs savings to reduce operations costs and the revenue paid to
employees was reduced due to lower product prices.
General and administrative costs were reduced in 1999 because of the
absence of legal fees associated with the Chapter 11 bankruptcy filing during
1998.
The Company sold all of its low BTU Colorado gas properties and several
small non-operated oil properties in Wyoming. The sale of these properties
resulted in a gain of approximately $1,800,000. The Company also abandoned most
of its Nevada properties and wrote off some other small non-producing
properties. The net result of all these actions was a gain of $1,323,080 on
"assets sold or abandoned."
During fiscal year ending September 30, 1999, the Company retired all
of its bank debt with proceeds from the sale of properties mentioned above. The
Company also received $164,068 from the issuance of common stock to its
shareholders during the fiscal year ending September 30, 1999. The prior fiscal
year, the Company received an additional $251,240 from the issuance of common
stock to its shareholders pursuant to the plan of reorganization. Common stock
<PAGE>
of the Company for the $415,308 received by the Company from the shareholders
was issued to the shareholders over the months from July 1998 to February 1999.
The Company has tax loss carry-forwards of $2,164,000, which began to
expire in the year 2000. Unless the Company continues to drill for oil and gas
at its historical levels the amount of tax loss carry-forward available to
offset income taxes will decline beginning in the year 2000. The Company,
depending on net income generated, may be required to pay substantial income
taxes in future years.
The Company has retired all of its bank debt as of September 30, 1999.
Total stockholders' equity increased from a negative $31,462 (FY 1998) to a
positive $924,530 (FY 1999) a gain of $955,992 due primarily to the gain on sale
of non-performing oil and gas properties. This increase in shareholder's equity
was primarily the result of the gain on assets sold and the proceeds from the
issuance of additional common stock. The current ratio improved from .22 (FY
1998) to 3.55 (FY 1999). Net income increased from $220,375 to $785,384.
Liquidity and Capital Resources
Historically the Company has funded operations primarily from earnings
and bank borrowing. As of September 30, 1999 the Company had working capital of
$335,525 and an unused line of credit with Zions Bank for $750,000. This line of
credit is collateralized by all of the companies operated oil and gas
properties. The line of credit bears interest at prime rate plus 1.5%. The line
of credit with Zions Bank matured on December 1, 1999, and was renewed for a two
year period ending December 31, 2001. As of September 30, 1999, no amount was
owing on the line of credit.
During fiscal 1999 cash used in operating activities was $793,570 while
cash provided in investing activities was $1,967,425. Cash used in financing
activities $1,085,084. Net increase in cash was $88,771, as cash increased from
$255,148 to $343,919. The changes in cash from operating activities, investing
activities and financing activities from 1998 to 1999, were all primarily a
result of the sale of the non-performing oil and gas assets which is addressed
above in Results of Operations.
Oil and Gas Properties
The Company as of the date of this filing is the owner of several oil
and gas properties located throughout the Rocky Mountain Region. The Company
operates three properties in Utah, three in Wyoming and one in Colorado. The
discounted future net cash flows of all the Company's properties is $1,736,000.
Income Taxes
The Company's present net operating loss carryforward arises from
operations for the year ended September 30th, 1998. Carryforwards of net
operating losses for years prior to the year ended September 30th, 1997 were
completely used for tax purposes to offset net income for the year ended
September 30th, 1999. The present loss carryforward of the Company will expire
in the year 2012.
ITEM 3. DESCRIPTION OF PROPERTY
The Company owns an interest in various oil and gas wells as described
below. The 9 operating wells that it owns in Utah and Wyoming account for the
majority of its oil and gas income. The nine producing wells are listed below
along with the working and net revenue interest that the Company owns in each of
the properties:
<PAGE>
Well Names Working Interest Net Revenue Interest
---------- ---------------- --------------------
South Pine Ridge #7-6 37.5% 30.04957%
NW Sheldon Dome #21-1 20.0% 17.5%
NW Sheldon Dome #31-1 20.0% 17.5%
NW Sheldon Dome #42-1 20.0% 17.5%
Willow Creek #29-13 76.1% 61.27833%
Pilot #1-A 100.0% 90.0%
Delta 100.0% 85.5%
Climax #7-2 80.5358% 67.650072%
Canyon State #2-36 76.0% 63.84%
A working interest means the percentage of the operating, drilling,
completing and reworking costs that the Company is required to pay. The net
revenue interest is the percentage of the revenues that the Company receives
from the sale of oil and gas from the wells.
The South Pine Ridge #7-6 and the Canyon State #2-36 are located in San
Juan County, Utah and the Willow Creek #29-13 in Grand County, Utah. The Climax
#7-2 well is located in Crook County, Wyoming and the remaining oil and gas
wells are located in Fremont County, Wyoming.
The remaining working interests owned in the various operated wells
listed above are owned by industry partners or employees of the Company. The
employees of the Company have the right to acquire up to 25% of any oil and gas
well or lease acquired by the Company as long as the employees pay their
proportionate share of the acquisition costs at the same time as the Company
acquires the wells or properties. Employees may not participate in the
acquisition of properties with the Company if they fail to pay their
proportionate share of the costs at the time the properties are acquired by the
Company. All employees have equal rights in purchasing an interest in the
properties and are allowed to acquire a proportionate share of the 25% interest
usually acquired by the employees. In the event the Company is unable to afford
75% of an interest in well(s) or lease(s) it is attempting to acquire the
employees of the Company may acquire more than 25% to enable the Company to
consummate the transaction. See also Item 7, "Certain Relationships and Related
Transactions".
The Company attempts to maintain all of its operating wells in good
working condition. Wells operated by the Company are generally overseen by
contract pumpers familiar with the oil and gas business in the area that the
well is located.
The operated wells listed above are secured by the Company's line of
credit. Other than the line of credit by Zions Bank the operated oil and gas
wells of the Company have no other liens or encumbrances.
The Company owns a small interest in approximately 100 other oil and
gas wells that it does not operate. The Company owns its interest in these
properties either as a working interest owner or as an overriding royalty
interest owner. These interests vary from the Company owning an interest of less
than a half of a percent to as high as ten percent. The non-operating properties
are located primarily in Colorado and Wyoming. The non-operating properties
account for less than 25% of the Company's total oil and gas revenues. The
Company also owns various non-producing oil and gas leases that it is either
attempting to sell to industry partners or develop itself.
<PAGE>
Exploration and Production
Since emerging from Chapter 11 bankruptcy, the Company has not drilled
any nor participated in the drilling of any oil and gas wells. In fact, the
Company has only participated in the drilling of one well during fiscal years
ending September 30, 1999, and September 30, 1998. The one well was deemed a dry
hole and drilled during the Spring of 1998. The well was drilled in Campbell
County, Wyoming and the Company owned in the well a 25% working interest.
In the next year the Company plans on participating in the drilling of
a well if it is able to successfully market one of its drilling programs it is
currently getting ready for sale to outside investors.
Proved Reserves
The following table sets forth the estimated proved developed oil and
gas reserves, net to Company's interest, of oil and gas properties as of
September 30, 1999. The reserve information is based on the independent
appraisal prepared by Fall Line Energy Inc. of Littleton, Colorado, and was
calculated in accordance with the rules and regulations of the Securities and
Exchange Commission. The oil price used was based on actual September pricing
when available. If the September price was not available, the differential
between the most recent known price and the monthly strip of historical WTI
postings as obtained from the U S Bank Energy Group was used. This differential
was then applied to the quoted September average WTI postings of $20.96, to
obtain the price used. The gas price was handled in a similar fashion. Where
possible, the average price for the 10/98-9/99 interval was used. If not, the
gradient between wellhead price and published indices was determined and then
applied to the index 12 month average. The 12 month average price for the CIG
index was $1.88/MMBTU as of September 30, 1999.
All product pricing were held flat for the life of the project.
<TABLE>
<CAPTION>
Present Value of Estimated Future Net Revenues
Estimated Proved Reserves Oil Gas Discounted at 10% (1)
- ------------------------- --- --- ---------------------
(MBbl) (MMCF) (M$)
Proved Developed Producing
Operated
<S> <C> <C> <C>
Canyon State 2-36 11.054 29.479 $ 115.831
Climax 7-2 118.078 0.000 688.840
Sheldon Tribal Lease (includes
31-1, 21-1, 42-1 wells) 11.697 0.000 69.819
South Pine Ridge 7-6 0.492 40.917 23.518
Willow Creek 29-13 24.441 38.494 244.339
Non-Operated
Mamm Creek 0.000 18.484 19.069
Climax Minnelusa Unit 8.047 0.000 38.840
Hunter Mesa Unit .586 198.570 155.282
Haight-Pittman 0.00 30.312 32.775
Totals 174.395 356.256 $1,388,313
========== =====================
</TABLE>
(1) The oil reserves assigned to the properties in the evaluation were
determined by analyzing current test data, extrapolating historical production
data, and comparing field data with the production history of similar wells in
the area. The current volatility of oil prices provides an element of
uncertainty to any estimates. If prices should vary significantly from those
projected in the appraisal, the resulting values would change substantially. The
reserve estimates contained in the engineering report are based on accepted
engineering and evaluation principles. The present value of estimated future net
revenues, discounted at 10%, does not necessarily represent an estimate of a
fair market value for the evaluated properties.
The reserve estimates contained herein are the same that are required
to be filed with any governmental agency.
There are numerous uncertainties inherent in estimating quantities of
proved oil reserves. The estimates in the appraisal are based on various
assumptions relating to rates of future production, timing and amount of
development expenditures, oil prices, and the results of planned development
work. Actual future production rates and volumes, revenues, taxes, operating
expenses, development expenditures, and quantities of recoverable oil reserves
may vary substantially from those assumed in the estimates. Any significant
change in these assumptions, including changes that result from variances
between projected and actual results, could materially and adversely affect
future reserve estimates. In addition, such reserves may be subject to downward
or upward revision based upon production history, results of future development,
prevailing oil prices, and other factors.
The actual amount of the Company's proved reserves are dependent on the
prevailing price for oil, which is beyond the Company's control or influence.
World oil prices declined significantly during 1997 and 1998 from previous Years
and have increased significantly during the last few months. There can be no
assurance that oil prices will decline or increase in the future. Oil and gas
prices have been and are likely to continue to be volatile and subject to wide
fluctuations in response to any of the followingfactors: relatively minor
changes in the supply of and demand for oil and gas;
market uncertainty; political conditions in international oil producing regions;
the extent of domestic production and importation of oil; the level of consumer
demand; weather conditions; the competitive position of oil as a source of
energy as compared with natural gas, coal, nuclear energy, hydroelectric power,
and other energy sources; the refining capacity of prospective oil purchasers;
the effect of federal and state regulation on the production, transportation and
sale of oil; and other factors, all of which are beyond the control or influence
of the Company.
Wells and Acreage
In the oil and gas industry and as used herein, the word "gross" well
or acre is a well or acre in which a working interest is owned; the number of
gross wells is the total number of wells in which a working interest is owned. A
"net" well or acre is deemed to exist when the sum of fractional ownership
working interests in gross wells or acres equals one. The number of net wells or
acres is the sum of the fractional working interests owned in gross wells or
acres.
Set forth below is information respecting the developed and undeveloped
acreage owned by the Company in Utah, Colorado, Nevada and Wyoming as of
September 30, 1999.
Developed Acreage Undeveloped Acreage
----------------- ----------------------
Gross Net Gross Net
------ ------- -------- --------
2,440 1,530 14,034 10,526
Annual rentals on all undeveloped leases for 2000 are expected to be
approximately $15,789.
Production and Sale of Oil and Gas
The following table summarizes certain information relating to the
Company's net oil and gas produced and from the Company's properties, after
royalties, during the periods indicated.
Year Ended September 30,
------------------------
1998 1999
------- --------
Average net daily production of oil (Bbl) 61 53
Average net daily production of gas (MCF) 510 234
Average sales price of oil ($ per Bbl) $12.87 $14.86
Average sales price of gas ($ per MCF) $1.60 $1.62
Average lifting cost per bbl oil equiv. $6.69 $ 9.11
DELIVERY COMMITMENTS
The Company sells its oil to the company willing to pay the highest
price for its crude oil. In the area that the Company sells its oil there are
several different companies offering to purchase the Company's oil. The Company
sells all of its crude oil on a 30 day contracts that can be terminated at
anytime upon 30 day notice by either party. The Company has also entered into
contracts to sell its gas production from the South Pine Ridge #7-6 and the
Willow Creek #29-14 at a price between $2,25-$2.40 until October 2000 for the
Willow Creek #29-14 and until November 30, 2000 for the South Pine Ridge #7-6.
The contracts do not require the Company to produce or sell any quantity of gas.
The contracts only provide that the price will be paid up to a certain amount of
gas produced from the wells which is more than the wells are currently
producing. Therefore, the Company has no commitments that obligate the Company
to produce any set amount of oil or gas.
The Company does not own the office space in which its business is
located. The Company has moved to a different office space that is owned by the
Company's Board of Directors. The new office space is a new office condominium
and the Company will pay less than at its old location. To provide more
operating capital for the Company the Company has chosen to lease the office
space from the Company's Board of Directors who have purchase the office
condominium themselves. The new office space will be leased on terms reasonable
for the same kind of office space in the area that it is located. The office
space is 1,950 square feet with an unfinished basement of approximately 975
square feet. The Company's new address is 1206 West South Jordan Parkway, Unit
B, South Jordan, Utah 85095-4551. The Company's telephone number remains (801)
566-3000 but the fax number has been changed to (801) 446-5500.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock by each person or group that
is known by the Company to be the beneficial owner of more than five percent of
its outstanding Common Stock, each director of the Company, each person name in
the Summary Compensation Table, and all directors and executive officers of the
Company as a group as September 30, 1999. Unless otherwise indicated, the
Company believes that the persons named in the table below, based on information
furnished by such owners, have sole voting and investment power with respect to
the Common Stock beneficially owned by them, where applicable.
Title of Name and Address of Amount and Nature Percent
Class Beneficial Owner of Beneficial Owner of Class
- -------- ------------------- ------------------- --------
Common Don J. Colton 728,121(1) 8.6%
2172 E Gambel Oak Drive
Sandy, Utah 84092
Common Gregg B. Colton 760,700(1) 9.0%
10026 Ridge Gate Circle
Sandy, Utah 84092
Common John O. Anderson 363,568(1) 4.3%
7462 S Parkridge Circle
Salt Lake City, Utah 84121
Common Kenneth M. Woolley 500,000 5.9%
2795 East Cottonwood Parkway
Suite 400
Salt Lake City, Utah 84121
Common Pioneer Employee Stock 1,681,132(2) 19.8%
Ownership Plan
1225 Fort Union Blvd., #100
Midvale, Utah 84047
All Directors and Officers as a Group
(3 Persons) 1,839,389 21.9%
<PAGE>
(1) Includes currently exercisable options to purchase common stock in
the Company as long as the person is serving as a director and employee
of the Company. Each of the persons listed under this footnote have
options to purchase 120,000 shares of the Company's Common Stock.
(2) Persons listed above have their vested shares under the Pioneer
Employee Stock Ownership Plan included under their name. Don J. Colton
and Gregg B. Colton as Trustees of the Pioneer Employee Stock Ownership
Plan have the right to vote all the shares of the Plan at any
shareholder meeting of the Company.
The Company currently has no arrangements, which may result in a change
of control.
ITEM 5. DIRECTORS, EXECUTIVE OFFICRS, PROMOTERS AND CONTROL PERSONS
The directors, executive officers and significant employees of the
company are as follows:
POSITION
NAME AGE WITH COMPANY
---- --- ------------
Don J. Colton 53 President/Treasurer & Director
Gregg B. Colton 46 Vice President/Secretary & Director
John O. Anderson 57 Office Manager/Director
Michael L. Pinnell 55 Exploration Manager
Note: Don J. Colton and Gregg B. Colton are brothers and John O.
Anderson is their uncle.
Don J. Colton serves as the Company's President, Treasurer and Chairman
of its Board of Directors. Since the Company's inception in October 1980 Mr.
Colton has served as the Company's President and has been involved in all
aspects of the business including exploration, acquisition and development of
producing properties. From 1979 to 1981, Mr. Colton was Chief Financial Officer
and a member of the Board of Directors of Drilling Research Laboratory in Salt
Lake City, Utah. The Drilling Research Laboratory is a subsidiary of Terra Tech,
Inc. and prior to his involvement with the Drilling Research Laboratory, Mr.
Colton was Manager of Special Projects for Terra Tech. Mr. Colton received a BS
in Physics from Brigham Young University in 1970 and a Master of Business
Administration from the University of Utah in 1974.
Gregg B. Colton serves as the Company's Vice President, Secretary,
General Counsel and a member of the Board of Directors. Mr. Colton has been
employed with the Company since it actually commenced business in 1981. Mr.
Colton is involved in handling the contracts, sales of oil and gas products and
legal problems of the Company along with the day to day decision making for the
Company with the Company's President. From 1981 to 1984, Mr. Colton was also a
partner in the law firm of Cannon, Hansen & Wilkinson. Mr. Colton is a member of
the Utah State Bar and a real estate broker. He is also a member of the
Corporate Counsel section for the Utah State Bar. Mr. Colton earned his BA from
the University of Utah in 1976 and a Juris Doctor and a Master of Business
Administration from Brigham Young University in 1981.
<PAGE>
John O. Anderson serves as the Company's Office Manager along with
being a member of the Board of Directors. Mr. Anderson as Office Manager handles
the day to day accounting for the Company along with handling the procurement of
office supplies. The Company has employed Mr. Anderson since 1981 and prior to
joining the Company he worked in land investments. Mr. Anderson received his BS
in Zoology in 1968 from the University of California.
Michael L. Pinnell serves as the Company's Exploration Manager and has
been employed by the Company from 1989 to the present. Mr. Pinnell is in charge
of performing and supervising the geological and geophysical interpretation for
the Company's drilling prospects. Mr. Pinnell worked as a consultant for various
companies from 1985 to 1989 and performed geological and geophysical services.
From 1981 to 1985 Mr. Pinnell was the Exploration Manager for Fortune Oil
Company. Mr. Pinnell received a BS in Geology in 1970 and an MS in Geology from
Brigham Young University.
ITEM 6. EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth all cash
compensation paid, distributed or accrued for services, including salary and
bonus amounts rendered in all capacities for the Company's CEO during the fiscal
years ended, September 30, 1999, 1998, and 1997. All other tables required to be
reported have been omitted as there has been no compensation awarded to, earned
by or paid to any of the executives of the Company that is required to be
reported other than what is stated below:
SUMMARY COMPENSATION TABLE
Name and Amount of Fiscal
Principal Position Compensation Year Ended
- ------------------ ------------------ ----------
Don J. Colton, CEO $72,403(1) 1999
Don J. Colton, CEO $72,403(1) 1998
Don J. Colton, CEO $82,998(1) 1997
(1) The amount of compensation included in the table above for each
fiscal year does not include amounts paid by the Company for the
Company's Employee Stock Ownership Plan. Under the Employee Stock
Ownership Plan 10% of the employees compensation for salary or bonuses
is paid on behalf of the employee for Company stock in the Company's
Employee Stock Ownership Plan. All full-time employees of the Company
participate in the Employee Stock Ownership Plan on the same terms and
conditions as management. For the fiscal years shown above 10% of the
compensation amount above was paid towards the Employee Stock Ownership
Plan in the form of Company stock.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
% of Total
Number of Options
Securities Granted to
Underlying Employees in Exercise Exp.
Name Options Granted Fiscal Year Price ($/Sh) Date
---- --------------- ----------- ------------ ----
<S> <C> <C> <C> <C>
Don J. Colton, CEO 120,000 28.57% $.30/Share (1)
</TABLE>
(1) The expiration date for 60,000 of the 120,000 options granted above
are due to expire on December 31, 2001, and the other 60,000 options
are due to expire on December 31, 2002.
<PAGE>
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Board of Directors approved more than 10 years ago a resolution to
allow employees of the Company to purchase 25% of any oil and gas producing
property acquired by the Company at the same time as the Company acquires the
property. The resolution required that the employees pay for 25% of the cost of
the oil and gas properties at the same time the Company purchased the
properties. In the event, the Company is unable to fund the total cost of any
producing properties the employees of the Company may purchase the amount the
Company is unable to fund even if it exceeds 25%. The employees also have the
right to acquire 25% of any non-producing oil and gas leases acquired by the
Company on similar terms as those for producing properties.
The Company also intends to lease office space that will be owned by
the Board of Directors. The office space will be leased to the Company on terms
reasonable for the same kind of office space in the area that it is located. The
new office space will be 1,950 square feet with an unfinished basement of
approximately 975 square feet.
ITEM 8. DESCRIPTION OF SECURITIES.
Qualification. The following statements constitute brief summaries of
the Company's Articles of Incorporation and Bylaws. Such summaries do not
purport to be fully complete and are qualified in their entirety by reference to
the full text of the Articles of Incorporation and Bylaws of the Company.
Common Stock. The Company's Articles of Incorporation authorize it to
issue up to 50,000,000 (fifty million) Shares of its Common Stock, which carry a
par value of $0.001 per Share.
Liquidation Rights. Upon liquidation or dissolution, each outstanding
Common Share will be entitled to share equally in the assets of the Company
legally available for the distribution to shareholders after the payment of all
debts and other liabilities.
Dividend Rights. There are no limitations or restrictions upon the
rights of the Board of Directors to declare dividends out of any funds legally
available therefor. The Company has not paid dividends to date and it is not
anticipated that any dividends will be paid in the foreseeable future. The Board
of Directors initially will follow a policy of retained earnings, if any, to
finance the future growth of the Company. Accordingly, future dividends, if any,
will depend upon, among other considerations, the Company's need for working
capital and its financial conditions at the time.
Voting Rights. Holders of Common Shares of the Company are entitled to
cast one vote for each share held at all shareholders meetings for all purposes.
<PAGE>
Other Rights. Common Shares are not redeemable, have no conversion
rights and carry no preemptive or other rights to subscribe to or purchase
additional Common Shares in the event of a subsequent offering.
Transfer Agent. The Company's transfer agent is Atlas Stock Transfer
whose address is 5899 South State Street, Murray, Utah 84107. The phone number
of Atlas Stock Transfer is (801) 266-7151.
The Securities and Exchange Commission has adopted Rule 15g-9 which
established the definition of a "penny stock", for the purposes relevant to the
Company, as any equity security that has a market price of less than $5.00 per
share, or with an exercise price of less than $5.00 per share, subject to
certain exceptions. For any transaction involving a penny stock, unless exempt,
the rules require: (i) that broker or dealer approve a person's account for
transactions in penny stocks; and, (ii) the broker or dealer receive from the
investor a written agreement to the transaction, setting forth the identity and
quantity of the penny stock to be purchased. In order to approve a person's
account for transactions in penny stocks, the broker or dealer must (i) obtain
financial information and investment experience objectives of the person; and
(ii) make a reasonable determination that the transaction(s) in penny stocks are
suitable for that person and the person has sufficient knowledge and experience
in financial matters to be capable of evaluating the risks of transactions in
penny stocks. The broker or dealer must also deliver, prior to any transaction
in a penny stock, a disclosure schedule prepared by the Commission relating to
the penny stock market, which, in highlighted form, (i) sets forth the basis on
which the broker or dealer made the suitability determination; and (ii) that the
broker or dealer received a signed, written agreement from the investors prior
to the transaction. Disclosure also has to be made about the risks of investing
in penny stocks in both public offerings and in secondary trading and about the
commissions payable to both the broker-dealer and registered representative,
current quotations for the securities and the rights and remedies available to
an investor in case of fraud in penny stock transaction. Finally, monthly
statements have to be sent disclosing recent price information for the penny
stocks held in the account and information on the limited market in penny
stocks.
PART II
ITEM 1. MARKET PRICE AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS.
The Company is listed on the over-the-counter market on the NASDAQ OTC
Bulletin Board. The range of high and low bid information for the shares of the
Company's stock for the last two complete fiscal years, as reported by the OTC
Bulletin Board National Quotation Bureau, is set forth below. Such quotations
represent prices between dealers, do not include retail markup, markdown or
commission, and does not represent actual transactions.
Year Ended September 30, 1999 High Low
- ----------------------------- ---- ---
First Quarter $0.15 $0.10
Second Quarter 0.2813 0.125
Third Quarter 0.2188 0.125
Fourth Quarter 0.375 0.125
<PAGE>
Year Ended September 30, 1998 High Low
- ----------------------------- ---- ---
First Quarter $0.055 $0.035
Second Quarter 0.05 0.035
Third Quarter 0.04 0.02
Fourth Quarter 0.025 0.015
As of November 18, 1999, the Company had issued and outstanding
8,135,018 common shares held by approximately 1,165 holders of record.
There have been no cash dividends declared by the Company since its
inception. Further, there are no restrictions that would limit the Company's
ability to pay dividends on its common equity or that would be likely to do so
in the future.
The Company has no plans to register any of its securities under the
Securities Act for sale by security holders. There is no public offering of
equity and there is no proposed public offering of equity.
ITEM 2. LEGAL PROCEEDINGS.
The Company is not a party to any legal proceedings, nor is the Company
aware of any disputes that may result in legal proceedings.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
The Company has had no changes in and/or disagreements with its
accountants.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
In June of 1998, the Company effected a reverse stock split of 10
common shares of the Company for one share. After the reverse stock split the
Company had issued and outstanding 4,289,431 common shares. Presently, the
Company has 8,135,018 common shares issued and outstanding. The 3,845,587 common
shares issued after the reverse stock split have been for purposes of paying the
Company's obligation under the Company's Employee Stock Ownership Plan, for
providing working capital and paying the creditors and expenses under the
Company's plan of reorganization in bankruptcy.
The Company has an Employee Stock Ownership Plan which obligates the
Company to invest 10% of the compensation for full-time employees for salary or
bonuses in common stock of the Company. All full-time employees of the Company
participate in the Employee Stock Ownership Plan on the same terms and
conditions as management. Shares in the Company's Employee Stock Ownership Plan
("ESOP") before November 1999 were issued from the Company to the Plan every six
months to cover the Company's obligation to the ESOP. From January 1997 to
September 1998, the Company issued to the ESOP 248,244 common shares calculated
on a post reverse stock split basis.
<PAGE>
In November of 1998, the ESOP in conjunction with the offer made to
shareholders of the Company purchased 1,500,000 common shares of the Company's
common stock at a price of $.20 per share in the form of a stock subscription
receivable. The stock subscription receivable owed by the ESOP to the Company is
reduced every six months by the amount of the obligation owed by the Company
towards the ESOP for that period. The stock subscription receivable bears
interest at a rate of six percent per annum.
For the Company to emerge from its Chapter 11 bankruptcy it required
enough capital to pay its creditors under the reorganization plan and needed
sufficient capital to operate. From July 1998 to February of 1999, the Company
issued 2,246,426 common shares to shareholders of the Company for a total
consideration of $415,308. From the $415,308 raised by the Company,
approximately $300,000 was used for paying bankruptcy expenses and for paying
the creditors of the Company. The remaining $115,308 of the $415,308 raised was
used for operating capital of the Company.
Sales of the Company's securities to the shareholders under the
Bankruptcy Plan and to the ESOP plan were exempt from registration under the
Securities Act of 1933 pursuant to Section 4(2) of the Act.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Officers and Directors of the Company are accountable to the
Company as fiduciaries, and consequently must exercise good faith and integrity
in handling its affairs. Law provides that a corporation organized under the
laws of the State of Utah has the power to indemnify its Officers and Directors
against expenses incurred by such persons in connection with any threatened,
pending or completed action, suit, or proceedings, whether civil, criminal,
administrative, or investigative involving such persons in their capacities as
officers and directors, so long as such persons acted in good faith and in a
manner which they reasonably believed to be in the best interests of the
Company.
Because the Bylaws and Articles of Incorporation as amended of the
Company provide for such indemnification, the foregoing provisions of Utah law
and the organization documents of the Company are broad enough to permit the
Company to indemnify its Officers and Directors from liabilities that may arise
under the Securities Act.
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES
ACT MAY BE PERMITTED TO ITS OFFICERS AND DIRECTORS, OR PERSONS CONTROLLING THE
COMPANY PURSUANT TO THE FOREGOING PROVISIONS, OR OTHERWISE, THE COMPANY HAS BEEN
ADVISED THAT IN THE OPINION OF THE SECURITIES AND EXCHANGE COMMISSION, SUCH
INDEMNIFICATION IS AGAINST PUBLIC POLICY AS EXPRESSED IN THE SECURITIES ACT OF
1933, AND IS, THEREFORE, UNENFORCEABLE.
ITEM 6. GENERAL - YEAR 200 ISSUES
Year 2000 Compliance Issues. The Company has established a plan to
address Year 2000 issues as part of its strategic business plan. This plan
encompasses the phases of awareness, assessment, renovation (if necessary),
validation, and implementation. These phases will enable the Company to identify
risks, develop action plans, perform adequate testing, and determine if its
various systems will be Year 2000 ready. Successful implementation(s) of this
<PAGE>
plan are expected to mitigate any extraordinary expenses or liabilities related
to the Year 2000 issue. The Company has a reasonable basis to preclude that the
Year 2000 issue will not materially effect future financial results, or cause
reported financial information to not to be necessarily indicative of future
operating results or future financial conditions. This basis is due to the fact
that the Company has and will be installing the latest updated versions of
technology systems, including hardware and software that is and will be Year
2000 compliant.
As part of its plan, the Company will contact all material suppliers,
customers, vendors, and information technology suppliers regarding their Year
2000 compliance and state of readiness. This process will be conducted over the
next few months. However no assurances can be given that the Year 2000
compliance plan will be successfully completed prior to year end.
The Company's contingency plan is somewhat simplistic, and involves
operating with a back-up generator for short periods of time, and the use of
manual systems where available and appropriate.
The successful and timely completion of the Year 2000 project is based
on the Company's best estimates which were derived from various assumptions of
future events. These events are inherently uncertain, including the progress and
results of vendors, suppliers and customers Year 2000 readiness.
The Company experienced no material Year 2000 problems of its own or
from third parties.
PART F/S FINANCIAL STATEMENTS
The following financial statements required by Item 310 of Regulation
S-B are furnished below along with unaudited quarterly financial statements for
the period commencing October 1, 1999, and ending December 31, 1999:
Financial Statements for First Fiscal Quarter 2000
Period Ending December 31, 1999
PIONEER OIL AND GAS
Balance Sheet
December 31,
(unaudited)
<TABLE>
<CAPTION>
Assets 1999 1998
------ ---- ----
<S> <C> <C>
Current assets:
Cash $ 227,376 $ -
Accounts receivable 102,976 100,078
Resale leases, at lower of cost or market 84,867 52,046
------------- --------------
Total current assets 415,219 152,124
Property and equipment - net (successful efforts method) 562,386 1,343,954
Other assets 3,230 6,589
------------- --------------
$ 980,835 $ 1,502,667
------------- --------------
- ---------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity (Deficit)
----------------------------------------------
Current liabilities:
Cash overdraft $ - $ 83,319
Accounts payable 100,205 121,579
Accrued expenses 22,258 48,935
Note payable - 1,255,692
------------- --------------
Total current liabilities 122,463 1,509,525
------------- --------------
Commitments and contingencies - -
Stockholders' equity (deficit):
Common stock, par value $.001 per share, authorized
50,000,000 shares: 8,135,018 shares and 5,644,792
shares issued and outstanding, respectively 8,134 8,134
Additional paid-in capital 2,521,069 2,460,777
Stock subscription receivable (293,460) (300,000)
Accumulated deficit (1,311,213) (2,096,597)
Year to date income (loss) (66,158) (79,172)
Total stockholder's equity (deficit) 858,372 (6,858)
------------- --------------
$ 980,835 $ 1,502,667
------------- --------------
</TABLE>
<PAGE>
PIONEER OIL AND GAS
Statement of Income
First Fiscal Quarter Ending December 31,
(unaudited)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Revenue:
Oil and gas sales $ 216,365 $ 166,706
Operational reimbursements 500 8,751
Project and lease sales income 0 15,104
---------- -----------
216,865 190,561
Costs and expenses:
Cost of operations 95,431 75,238
General and administrative expenses 110,183 69,878
Exploration costs 46,628 64,596
Lease rentals 1,825 1,459
Depreciation, depletion and amortization 31,590 37,868
---------- -----------
285,657 249,039
---------- -----------
Loss from operations (68,792) (58,478)
---------- -----------
Other income (expense):
Gain on assets sold or abandoned - -
Gain on marketable securities - -
Interest expense (5) (21,136)
Other (expense) income 2,639 442
---------- -----------
2,634 (20,694)
Income (loss before provision
for income taxes (66,158) (79,172)
Provision for income taxes - -
---------- -----------
Income (loss) before extraordinary item (66,158) (79,172)
Extraordinary gain from extinguishment of debt
(net of income taxes of $-0-) - -
---------- -----------
Net income $ (66,158) $ (79,172)
---------- -----------
</TABLE>
<PAGE>
PIONEER OIL AND GAS
Statement of Cash Flows
First Fiscal Quarter Ending December 31,
(unaudited)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ (66,158) $ (79,172)
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Gain on assets sold or abandoned - -
Depreciation, depletion and amortization 31,590 37,868
Gain on forgiveness of debt - -
Realized loss on marketable securities - -
Stock issued to employee stock ownership plan - -
(increase) decrease in:
Accounts receivable 2,822 (14,985)
Resale leases (67,534) -
Property and Equipment - net (7,972) -
Other assets (230) (3,589)
Increase (decrease) in:
Outstanding checks in excess of bank balance - 4,465
Accounts payable (8,894) (49,022)
Accrued expenses (167) (254,489)
----------- -----------
Net cash (used in) provided by
operating activities (116,543) (358,924)
----------- -----------
Cash flows from investing activities:
Proceeds from sale of property - -
Acquisition of property and equipment - -
----------- -----------
Net cash provided by investing activities - -
----------- -----------
Cash flow from financing activities:
Proceeds from note payable - -
Payments on note payable - -
Proceeds from issuance of common stock - 403,776
Collection of stock subscription receivable - -
Stock subscription receivable - (300,000)
----------- -----------
Net cash (used in) provided by
financing activities - 103,776
----------- -----------
Net increase (decrease) in cash (116,543) (255,148)
Cash, beginning of quarter $ 343,919 $ 255,148
----------- -----------
Cash, end of quarter $ 227,376 $ 0
----------- -----------
</TABLE>
<PAGE>
PIONEER OIL AND GAS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
First Fiscal Quarter Ending December 31, 1999
(unaudited)
NOTE 1 - UNAUDITED INTERIM INFORMATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Regulation
S-B. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three-month period ended December 31, 1999
are not necessarily indicative of the results that may be expected for the year
ending September 30, 2000. For further information, refer to the financial
statements and footnotes thereto included in the Company's Form 10-QSB for the
year ended September 30, 1999.
<PAGE>
PIONEER OIL AND GAS
Financial Statements
September 30, 1999 and 1998
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and
Stockholders of Pioneer Oil and Gas
We have audited the accompanying balance sheet of Pioneer Oil and Gas as of
September 30, 1999 and 1998, and the related statements of income, stockholders'
equity (deficit), and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 Pioneer Oil and Gas as of
September 30, 1999 and 1998, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
Salt Lake City, Utah
November 15, 1999
<PAGE>
<TABLE>
<CAPTION>
PIONEER OIL AND GAS
Statement of Income
Years Ended September 30,
- ----------------------------------------------------------------------------------------------------------
1999 1998
-----------------------------------
Revenue:
<S> <C> <C>
Oil and gas sales $ 585,121 $ 772,774
Royalty revenue 70,325 129,654
Operational reimbursements 12,148 11,255
Project and lease sales income 3,270 159,637
-----------------------------------
670,864 1,073,320
-----------------------------------
Costs and expenses:
Cost of operations 462,711 591,260
General and administrative expenses 304,734 357,986
Exploration costs 152,934 157,687
Lease rentals 4,710 1,710
Depreciation, depletion and amortization 151,472 117,163
-----------------------------------
1,076,561 1,225,806
-----------------------------------
Loss from operations (405,697) (152,486)
-----------------------------------
Other income (expense):
Gain on assets sold or abandoned 1,323,080 -
Gain on marketable securities - (114,325)
Interest expense (129,372) (121,640)
Other (expense) income (2,627) 11,272
-----------------------------------
1,191,081 (224,693)
-----------------------------------
Income (loss) before provision
for income taxes 785,384 (377,179)
Provision for income taxes - -
-----------------------------------
Income (loss) before extraordinary item 785,384 (377,179)
Extraordinary gain from extinguishment of debt
(net of income taxes of $-0-) - 597,554
-----------------------------------
Net income $ 785,384 $ 220,375
- ----------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
-1-
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PIONEER OIL AND GAS
Balance Sheet
September 30,
- ----------------------------------------------------------------------------------------------------------
Assets 1999 1998
------
-----------------------------------
Current assets:
<S> <C> <C>
Cash $ 343,919 $ 255,148
Accounts receivable 105,798 85,093
Resale leases, at lower of cost or market 17,333 52,046
-----------------------------------
Total current assets 467,050 392,287
Property and equipment - net (successful efforts method) 586,005 1,381,822
Other assets 3,000 3,000
-----------------------------------
$ 1,056,055 $ 1,777,109
-----------------------------------
- ----------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Cash overdraft $ - $ 78,854
Accounts payable 109,099 170,601
Accrued expenses 22,426 303,424
Note payable - 1,255,692
-----------------------------------
Total current liabilities 131,525 1,808,571
-----------------------------------
Commitments and contingencies - -
Stockholders' equity (deficit):
Common stock, par value $.001 per share, authorized
50,000,000 shares; 8,135,018 shares and 5,644,792
shares issued and outstanding, respectively 8,134 5,644
Additional paid-in capital 2,521,069 2,059,491
Stock subscription receivable (293,460) -
Accumulated deficit (1,311,213) (2,096,597)
-----------------------------------
Total stockholders' equity (deficit) 924,530 (31,462)
-----------------------------------
$ 1,056,055 $ 1,777,109
-----------------------------------
- ----------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
-2-
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PIONEER OIL AND GAS
Statement of Stockholders' Equity (Deficit)
Years Ended September 30, 1999 and 1998
- ----------------------------------------------------------------------------------------------------------
Additional Stock Unrealized
Common Stock Paid-in Subscription Holding Accumulated
-------------------
Shares Amount Capital Receivable Loss Deficit Total
---------------------------------------------------------------------------------
Balance,
<S> <C> <C> <C> <C> <C> <C> <C>
October 1, 1997 4,235,807 $ 4,235 $ 1,785,871 $ - $ (85,141) $(2,316,972) $ (612,007)
Shares issued to
employee stock ownership
plan as follows:
April 1998 53,624 54 11,341 - - - 11,395
September 1998 99,161 99 12,295 - - - 12,394
Shares issued in
conjunction with
bankruptcy reorganization 1,256,200 1,256 249,984 - - - 251,240
Change in unrealized
holding loss - - - - 85,141 - 85,141
Net income - - - - - 220,375 220,375
---------------------------------------------------------------------------------
Balance,
September 30, 1998 5,644,792 5,644 2,059,491 - - (2,096,597) (31,462)
Issuance of common stock for:
Cash 990,226 990 163,078 - - - 164,068
Receivable 1,500,000 1,500 298,500 (300,000) - - -
Payments on stock
subscription receivable - - - 6,540 - - 6,540
Net income - - - - - 785,384 785,384
---------------------------------------------------------------------------------
Balance,
September 30, 1997 8,135,018 $ 8,134 $ 2,521,069 $ (293,460)$ - $(1,311,213) $ 924,530
---------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
-3-
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PIONEER OIL AND GAS
Statement of Cash Flows
Years Ended September 30,
- ----------------------------------------------------------------------------------------------------------
1999 1998
-----------------------------------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 785,384 $ 220,375
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Gain on assets sold or abandoned (1,323,080) 18,795
Depreciation, depletion and amortization 151,472 117,163
Gain on forgiveness of debt - (597,554)
Realized loss on marketable securities - 114,325
Stock issued to employee stock ownership plan - 23,789
(Increase) decrease in:
Accounts receivable (20,705) 14,492
Resale leases 34,713 10,873
Other assets - 50,720
Increase (decrease) in:
Outstanding checks in excess of bank balance (78,854) 78,854
Accounts payable (61,502) 61,986
Accrued expenses (280,998) (8,053)
-----------------------------------
Net cash (used in) provided by
operating activities (793,570) 105,765
-----------------------------------
Cash flows from investing activities:
Proceeds from sale of property 2,002,000 75,113
Acquisition of property and equipment (34,575) (2,847)
-----------------------------------
Net cash provided by
investing activities 1,967,425 72,266
-----------------------------------
Cash flow from financing activities:
Proceeds from note payable 75,727 20,000
Payments on note payable (1,331,419) (234,315)
Proceeds from issuance of common stock 164,068 251,240
Collection of stock subscription receivable 6,540 -
-----------------------------------
Net cash (used in) provided by
financing activities (1,085,084) 36,925
-----------------------------------
Net increase in cash 88,771 214,956
Cash, beginning of year 255,148 40,192
-----------------------------------
Cash, end of year $ 343,919 $ 255,148
-----------------------------------
- ----------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
-4-
</TABLE>
<PAGE>
PIONEER OIL AND GAS
Notes to Financial Statements
September 30, 1999 and 1998
- --------------------------------------------------------------------------------
1. Organization and Summary of Significant Accounting Policies
Organization
The Company is incorporated under the laws of the state of Utah and is primarily
engaged in the business of acquiring, developing, producing and selling oil and
gas properties to companies located in the continental United States.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments with a maturity of three months or less to be cash
equivalents.
Concentration of Credit Risk
The Company maintains its cash in bank deposit accounts which, at times, may
exceed federally insured limits. The Company has not experienced any losses in
such account. The Company believes it is not exposed to any significant credit
risk on cash and cash equivalents.
Resale Leases
The Company capitalizes the costs of acquiring oil and gas leaseholds held for
resale, including lease bonuses and any advance rentals required at the time of
assignment of the lease to the Company. Advance rentals paid after assignment
are charged to expense as carrying costs in the period incurred. Costs of oil
and gas leases held for resale are valued at lower of cost or net realizable
value and included in current assets since they are expected to be sold within
one year, although the holding period of individual leases may be in excess of
one year. The cost of oil and gas leases sold is determined on a specific
identification basis.
- --------------------------------------------------------------------------------
-5-
<PAGE>
PIONEER OIL AND GAS
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
1. Organization and Summary of Significant Accounting Policies
Continued
Oil and Gas Producing Activities
The Company utilizes the successful efforts method of accounting for its oil and
gas producing activities. Under this method, all costs associated with
productive exploratory wells and productive or nonproductive development wells
are capitalized while the costs of nonproductive exploratory wells are expensed.
If an exploratory well finds oil and gas reserves, but a determination that such
reserves can be classified as proved is not made after one year following
completion of drilling, the costs of drilling, the costs of drilling are charged
to operations. Indirect exploratory expenditures, including geophysical costs
and annual lease rentals, are expensed as incurred. Unproved oil and gas
properties that are individually significant are periodically assessed for
impairment of value, and a loss is recognized at the time of impairment by
providing an impairment allowance. Other uproved properties are amortized based
on the Company's experience of successful drilling and average holding period.
Capitalized costs of producing oil and gas properties, after considering
estimated dismantlement and abandonment costs and estimated salvage values, are
depreciated and depleted by the unit-of-production method. Support equipment and
other property and equipment are depreciated over their estimated useful lives.
On the sale or retirement of a complete unit of a proved property, the cost and
related accumulated depreciation, depletion, and amortization are eliminated
from the property accounts, and the resultant gain or loss is recognized. On the
retirement or sale of a partial unit of proved property, the cost is charged to
accumulated depreciation, depletion, and amortization with a resulting gain or
loss recognized in income.
On the sale of an entire interest in an unproved property for cash or cash
equivalent, gain or loss on the sale is recognized, taking into consideration
the amount of any recorded impairment if the property had been assessed
individually. If a partial interest in an unproved property is sold, the amount
received is treated as a reduction of the cost of the interest retained.
- --------------------------------------------------------------------------------
-6-
<PAGE>
PIONEER OIL AND GAS
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
1. Organization and Summary of Significant Accounting Policies
Continued
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets. Expenditures for maintenance and repairs are
expensed when incurred and betterments are capitalized. When assets are sold,
retired or otherwise disposed of, the applicable costs and accumulated
depreciation, depletion and amortization are removed from the accounts, and the
resulting gain or loss is reflected in operations.
Income Taxes
Deferred income taxes arise from temporary differences resulting from income and
expense items reported for financial accounting and tax purposes in different
periods. Deferred taxes are classified as current or noncurrent, depending on
the classification of the assets and liabilities to which they relate. Deferred
taxes arising from temporary differences that are not related to an asset or
liability are classified as current or noncurrent depending on the periods in
which the temporary differences are expected to reverse. Temporary differences
result primarily from intangible drilling costs and depletion.
Earnings Per Share
The computation of basic earnings per common share is based on the weighted
average number of shares outstanding during each year.
The computation of diluted earnings per common share is based on the weighted
average number of shares outstanding during the year plus the common stock
equivalents which would arise from the exercise of stock options and warrants
outstanding using the treasury stock method and the average market price per
share during the year. Common stock equivalents are not included in the diluted
earnings per share calculation when their effect is antidilutive.
Revenue Recognition
Revenue is recognized from oil sales at such time as the oil is delivered to the
buyer. Revenue is recognized from gas sales when the gas passes through the
pipeline at the well head. Revenue from overriding royalty interests is
recognized when earned.
The Company does not have any gas balancing arrangements.
- --------------------------------------------------------------------------------
-7-
<PAGE>
PIONEER OIL AND GAS
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
1. Organization and Summary of Significant Accounting Policies
Continued
Use of Estimates in the Preparation of Financial Statements 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 and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
2. Property and Equipment
Property and equipment consists of the following:
September 30,
-----------------------------------
1999 1998
-----------------------------------
Oil and gas properties (successful
efforts method) $ 1,590,708 $ 2,316,836
Office furniture and equipment 118,427 122,069
-----------------------------------
1,709,135 2,438,905
Less accumulated depreciation,
depletion and amortization (1,123,130) (1,057,083)
-----------------------------------
$ 586,005 $ 1,381,822
-----------------------------------
3. Bank Line of Credit
At September 30, 1999, the Company has a bank revolving line-of-credit in the
amount of $750,000 bearing interest at the bank's prime rate plus 1.5 percent
and is secured by producing properties. The line-of-credit matures on December
1, 1999 and had no outstanding balance at September 30, 1999.
At September 30, 1998, the Company had a note payable to a bank in monthly
installments of $26,100 including interest at a rate equal to the bank's prime
rate plus 1.5 percent. The note payable had an outstanding balance of $1,255,692
at September 30, 1998. The note was repaid, in full, during the year ended
September 30, 1999.
- --------------------------------------------------------------------------------
-8-
<PAGE>
PIONEER OIL AND GAS
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
4. Income Taxes
The provision for income taxes differs from the amount computed at federal
statutory rates as follows:
Years Ended
September 30,
-----------------------------------
1999 1998
-----------------------------------
Income tax (provision) benefit at
statutory rate $ (267,000) $ 120,000
Change in valuation allowance/
deferred tax asset 267,000 (120,000)
-----------------------------------
$ - $ -
-----------------------------------
Deferred tax assets (liabilities) are comprised of the following:
September 30,
--------------------------------
1999 1998
--------------------------------
Intangible drilling costs and depletion $ (107,000) $ (105,000)
Net operating loss carry forward 736,000 1,090,000
AMT credit carry forward 3,000 3,000
Capital loss carry forward 53,000 53,000
Investment tax credit carry forwards - 19,000
--------------------------------
685,000 1,060,000
Valuation allowance (685,000) (1,060,000)
--------------------------------
$ - $ -
--------------------------------
A valuation allowance has been recorded for the full amount of the deferred tax
asset because it is more likely than not that the deferred tax asset will not be
realized.
- --------------------------------------------------------------------------------
-9-
<PAGE>
PIONEER OIL AND GAS
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
4. Income Taxes
Continued
As of September 30, 1999, the Company has a net operating loss carryforward of
approximately $2,164,000. This carryforward expires in 2012. If substantial
changes in the Company's ownership should occur, there would be an annual
limitation of the amount of NOL carry forward which could be utilized. Also, the
ultimate realization of these carry forwards is due, in part, on the tax law in
effect at the time and future events which cannot be determined.
The Company's valuation allowance was reduced for the expiration of both the
investment tax credit carryforward and a portion of the net operating loss
carryforward.
5. Sales to Major Customers
The Company had sales to major customers during the year ended September 30,
1999 and 1998, which exceeded ten percent of total sales as follows:
Years Ended
Sepember 30,
--------------------------------
1999 1998
--------------------------------
Company A $ 191,844 $ -
Company B $ 86,025 $ -
6. Related Party Transactions
The Company acts as the operator for several oil and gas properties in which
employees, officers and other related and unrelated parties have a working or
royalty interest. At September 30, 1999 and 1998 there was $7,390 and $-0-,
respectively, included in accounts payable due to related parties as a result of
these activities. The Company also is the general partner in certain
insignificant limited partnerships and the operator for certain joint ventures
formed for the purpose of oil and gas exploration and development.
- --------------------------------------------------------------------------------
-10-
<PAGE>
PIONEER OIL AND GAS
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
7. Supplemental Disclosuresc of Cash Flow Information
Operations reflect actual amounts paid for interest and income taxes as follows:
Years Ended
September 30,
--------------------------------
1999 1998
--------------------------------
Interest $ 129,000 $ 121,326
--------------------------------
Income taxes $ 100 $ 100
--------------------------------
During the year ended September 30, 1999:
o The Company issued 1,500,000 shares of common stock in exchange for a stock
subscription receivable in the amount of $300,000.
8. Fair Value of Financial Instruments
The Company's financial instruments consist of cash, receivables, payables, and
notes payable. The carrying amount of cash, receivables and payables
approximates fair value because of the short-term nature of these items. The
carrying amount of the notes payable approximates fair value as the individual
borrowings bear interest at floating market interest rates.
9. Common Stock Reverse Split
On June 22, 1998, the Company's Board of Directors approved a 1 for 10 reverse
stock split. All references in the financial statements to number of shares, and
per share amounts have been retroactively restated to reflect the decreased
number of shares outstanding.
10. Stock Options and Warrants
Employee Stock Ownership Plan
The Company has adopted a noncontributory employee stock ownership plan (ESOP)
covering all full-time employees who have met certain service requirements. It
provides for discretionary contributions by the Company as determined annually
by the Board of Directors, up to the maximum amount permitted under the Internal
Revenue Code. The plan has received IRS approval under Section 401(A) and 501(A)
of the Internal Revenue Code. Pension expense charged to operations for the
years ended September 30, 1999 and 1998 was $24,540 and $23,790, respectively.
All outstanding shares held by the ESOP are included in the calculation of
earnings per share.
- --------------------------------------------------------------------------------
-11-
<PAGE>
PIONEER OIL AND GAS
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
10. Stock Options and Warrants
Continued
The Company has granted stock options and warrants to certain officers and
employees of the Company to purchase shares of the Company's common stock. The
exercise price of the options and warrants is equal to or in excess of the fair
market value of the stock on the date of grant. A schedule of the options and
warrants at September 30, 1999 is as follows:
Exercise
Number of Price Per
------------------------------
Options Warrants Share
---------------------------------------------
Outstanding at
September 30, 1998
and 1997 60,000 300,000 $ .55 - 1.20
Granted 420,000 300,000 .30
Canceled (60,000) (300,000) .55 - 1.20
---------------------------------------------
Outstanding at
September 30, 1999 420,000 300,000 $ .30
---------------------------------------------
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123) gives entities the choice between adopting a fair value
method or continuing to use the intrinsic value method under Accounting
Principles Board (APB) Opinion No. 25 with footnote disclosures of the pro forma
effects if the fair value method had been adopted. The Company has opted for the
latter approach. Had compensation expense for the Company's stock options and
warrants been determined based on the fair value at the grant date for awards in
1999, consistent with the provisions of SFAS No. 123, the Company's results of
operations would have been as follows:
Year Ended
September 30,
1999
------------------
Net income - as reported $ 785,384
Net income - pro forma $ 685,195
Earnings per share - as reported $ .10
Earnings per share - pro forma $ .09
------------------
- --------------------------------------------------------------------------------
-12-
<PAGE>
PIONEER OIL AND GAS
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
10. Stock Options and Warrants
Continued
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions:
September 30,
1999
------------------
Expected dividend yield $ -
Expected stock price volatility 116%
Risk-free interest rate 6.06%
Expected life of options 2 to 3 years
------------------
The weighted average fair value of options and warrants granted during 1999 was
$.14.
During the year ended September 30, 1998, no options or warrants were granted
and, therefore, there would be no pro forma effect on the 1998 operations.
The following table summarizes information about stock options and warrants
outstanding at September 30, 1999:
Outstanding Exercisable
------------------------------------------------------------
Weighted
Average
Number Remaining Weighted Number Weighted
Outstanding Contractual Average Exercisable Average
Exercise at Life Exercise at Exercise
Price 9/30/99 (Years) Price 9/30/99 Price
- ------------------------------------------------------------------------
$ .30 720,000 2.00 $ .30 720,000 $ .30
- ------------------------------------------------------------------------
- --------------------------------------------------------------------------------
-13-
<PAGE>
PIONEER OIL AND GAS
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
11. Earnings Per Share
Financial accounting standards require companies to present basic earnings per
share (EPS) and diluted earnings per share along with additional informational
disclosures. Information related to earnings per share is as follows:
September 30,
------------------------------
1999 1998
------------------------------
Basic and Diluted EPS:
Net income available to common
stockholders $ 785,384 $ 220,375
------------------------------
Weighted average common
shares 7,723,000 4,258,000
------------------------------
Net income (loss) per share:
Continuing operations $ .10 $ (.09)
Extraordinary item - .14
------------------------------
$ .10 $ .05
------------------------------
12. Commitments and Contingencies
Limited Partnerships
The Company has an immaterial interest in two limited partnership drilling
programs and acts as the general partner. As the general partner, the Company is
contingently liable for any obligations of the partnerships and may be
contingently liable for claims generally incidental to the conduct of its
business as general partner. As of September 30, 1999, the Company was unaware
of any such obligations or claims arising from these partnerships.
Employment Agreements
The Company has entered into severance pay agreements with officers of the
Company who also serve as board members. Under the terms of the agreements, a
board member who is terminated shall receive severance pay equal to the amount
such board member received in salary and bonus for the two years prior to
termination.
- --------------------------------------------------------------------------------
-14-
<PAGE>
PIONEER OIL AND GAS
Schedule of Supplementary Information
on Oil and Gas Operations
- --------------------------------------------------------------------------------
The information on the Company's oil and gas operations as shown in this
schedule is based on the successful efforts method of accounting and is
presented in conformity with the disclosure requirements of the Statement of
Financial Accounting Standards No. 69 "Disclosures about Oil and Gas Producing
Activities."
<TABLE>
<CAPTION>
Capitalized Costs Relating to Oil and Gas Producing Activities
September 30,
-------------------------------
1999 1998
-------------------------------
<S> <C> <C>
Proved oil and gas properties and related equipment $ 1,584,261 $ 2,190,465
Unproved oil and gas properties 6,447 126,371
-------------------------------
Subtotal 1,590,708 2,316,836
Accumulated depreciation, depletion and amortization
and valuation allowances (1,012,865) (953,880)
-------------------------------
$ 577,843 $ 1,362,956
-------------------------------
</TABLE>
Costs Incurred in Oil and Gas Acquisition,
Exploration and Development Activities
Years Ended
September 30,
-------------------------------
1999 1998
-------------------------------
Acquisition of properties:
Proved $ - $ -
Unapproved - -
Exploration costs 152,934 157,687
Development costs 20,250 264,190
- --------------------------------------------------------------------------------
-15-
<PAGE>
PIONEER OIL AND GAS
Schedule of Supplementary Information
on Oil and Gas Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Results of Operations for Producing Activities
Years Ended
September 30,
-------------------------------
1999 1998
-------------------------------
<S> <C> <C>
Oil and gas - sales $ 655,446 $ 902,428
Production costs net of reimbursements 450,563 (580,005)
Exploration costs (152,934) (157,687)
Depreciation, depletion and amortization
and valuation provisions (144,411) (107,140)
-------------------------------
Net (loss) income before income taxes (92,462) 57,596
Income tax benefit (provision) 20,000 (9,000)
-------------------------------
Results of operations from producing activities
(excluding corporate overhead and interest costs) $ (72,462) $ 48,596
-------------------------------
</TABLE>
- --------------------------------------------------------------------------------
-16-
<PAGE>
PIONEER OIL AND GAS
Schedule of Supplementary Information
on Oil and Gas Operations
- --------------------------------------------------------------------------------
Reserve Quantity Information (Unaudited)
The estimated quantities of proved oil and gas reserves disclosed in the table
below are based upon estimates by the Company in fiscal 1998 and proved
developed properties by Fall Line Energy and proved undeveloped properties by
the Company in 1999. Such estimates are inherently imprecise and may be subject
to substantial revisions.
The revisions may occur because among other things current prices of oil and gas
and current costs of operating are subject to fluctuations, past performance of
wells does not necessarily guarantee future performance and rates used to
estimate decline of reserves could vary from that which is projected.
All quantities shown in the table are proved reserves and are located within the
United States.
<TABLE>
<CAPTION>
Years Ended September 30,
---------------------------------------------------
1999 1998
---------------------------------------------------
Oil Gas Oil Gas
(bbls) (mcf) (bbls) (mcf)
---------------------------------------------------
Proved developed and undeveloped
reserves:
<S> <C> <C> <C> <C>
Beginning of year 185,006 5,899,880 147,525 1,333,376
Revision in previous estimates 223,154 2,660 59,732 (24,170)
Discoveries and extension - - - -
Purchase in place - - - 4,777,092
Production (19,265) (85,430) (22,251) (186,418)
Sales in place - (5,460,854) - -
---------------------------------------------------
End of year 388,895 356,256 185,006 5,899,880
---------------------------------------------------
Proved developed reserves:
Beginning of year 185,006 609,768 147,525 584,596
End of year 174,395 356,256 185,006 609,768
</TABLE>
- --------------------------------------------------------------------------------
-17-
<PAGE>
PIONEER OIL AND GAS
Schedule of Supplementary Information
on Oil and Gas Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Standardized Measure of Discounted Future Net Cash Flows
Changes Therein Relating to Proved Oil and Gas Reserves (Unaudited)
Years Ended
September 30,
1999 1998
-------------------------------
<S> <C> <C>
Future cash inflows $ 7,241,000 $ 12,464,000
Future production and development costs (3,156,000) (3,734,000)
Future income tax expenses (1,389,000) (2,968,000)
-------------------------------
2,696,000 5,762,000
10% annual discount for estimated timing of cash flows (960,000) (2,051,000)
-------------------------------
Standardized measure of discounted future net cash flows $ 1,736,000 $ 3,711,000
-------------------------------
</TABLE>
- --------------------------------------------------------------------------------
-18-
<PAGE>
PIONEER OIL AND GAS
Schedule of Supplementary Information
on Oil and Gas Operations
- --------------------------------------------------------------------------------
Standardized Measure of Discounted Future Net Cash Flows
Changes Therein Relating to Proved Oil and Gas Reserves (Unaudited) - Continued
The preceding table sets forth the estimated future net cash flows and related
present value discounted at a 10% annual rate from the Company's proved reserves
of oil, condensate and gas. The estimated future net revenue is computed by
applying the year end prices of oil and gas (including price changes that are
fixed and determinable) and current costs of development and production to
estimated future production assuming continuation of existing economic
conditions. The values expressed are estimates only, without actual long-term
production to base the production flows, and may not reflect realizable values
or fair market values of the oil and gas ultimately extracted and recovered. The
ultimate year of realization is also subject to accessibility of petroleum
reserves and the ability of the Company to market the products.
Changes in the Standardized Measure of
Discounted Future Cash Flows (Unaudited)
Years Ended
September 30,
-------------------------------
1999 1998
-------------------------------
Balance, beginning of year $ 3,711,000 $ 1,153,000
Sales of oil and gas produced net of
production costs (423,000) (840,000)
Net changes in prices and production costs (671,000) (369,000)
Extensions and discoveries, less related
costs - -
Purchase and sales of minerals in place (4,100,000) 7,100,000
Revisions of estimated development costs - -
Revisions of previous quantity estimate 2,098,000 (2,478,000)
Accretion of discount 371,000 115,000
Net changes in income taxes 750,000 (970,000)
-------------------------------
Balance, end of year $ 1,736,000 $ 3,711,000
-------------------------------
- --------------------------------------------------------------------------------
-19-
<PAGE>
PART III. INDEX TO EXHIBITS
The following Exhibits are filed herewith:
Exhibit No. Description
- ----------- ------------
3(i) Articles of Incorporation
(with amendments)
3(ii) Bylaws
10 Line of Credit Agreement
23 Fall Line Energy letter from Petroleum
Engineer
27 Updated financial information
99 Minutes Approving Employee Participation in
Acquisitions
<PAGE>
SIGNATURE
In accordance with Section 12 of the Securities Act of 1934, the
Company caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
PIONEER OIL AND GAS
By:____________________________ Date:____________,1999.
Don J. Colton, President
The following Exhibits are filed herewith:
Exhibit No. Description
- ----------- ------------
3(i) Articles of Incorporation
(with amendments)
3(ii) Bylaws
10 Line of Credit Agreement
23 Fall Line Energy letter from Petroleum
Engineer
27 Updated financial information
99 Minutes Approving Employee Participation in
Acquisitions
ARTICLES OF INCORPORATION
OF
PIONEER OIL AND GAS
We, the undersigned natural persons of the age of twenty-one (21) years
or more, acting as incorporators of a corporation under the Utah Business
Corporation Act, adopt the following Articles of Incorporation for such
corporation.
ARTICLE I - NAME
The name of the corporation is Pioneer Oil and Gas.
ARTICLE II - DURATION
The duration of the corporation is perpetual.
ARTICLE III - PURPOSES
The purpose of the corporation shall be to conduct any or all lawful
business for which corporation may be organized under the Utah Business
Corporation Act as from time to time authorized by its Board of Directors,
including the accumulation of investment capital and the acquisition of the
assets and/or businesses of other corporations, partnerships, sole
proprietorships or other forms of business entities; provided however, the
corporation shall not:
<PAGE>
(1) engage in the banking business, the trust company business or the
practice of any profession permitted to be incorporated under Utah
laws;
(2) engage primarily or hold itself out as being primarily engaged in
the business of investing, reinvesting or trading in securities;
(3) engage in the business of issuing face-amount certificates of the
installment type, nor have any such certificate outstanding;
(4) engage in or propose to engage in, the business of investing,
reinvesting, owning, holding or trading in securities having a
value exceeding forty (40) per centum of the value of the
corporation's total assets (exclusive of Government securities and
cash items) on an unconsolidated basis;
(5) for compensation, engage in the business of advising others,
either directly or through publications or writings, as to the
value of securities or as to the advisability of investing in,
purchasing, or selling securities; or
(6) for compensation, and as a part of a regular business, issue or
promulgate analyses or reports concerning securities.
In pursuit of its purposes, the corporation shall have all the powers
granted by law to corporations under the laws of the State of Utah and elsewhere
as pertinent.
ARTICLE IV - STOCK
The aggregate number of shares which this corporation shall have
authority to issue is 50,000,000 shares of Common Stock having a par value per
share of$.001 (one-tenth of a cent). All stock of the corporation shall be of
the same class, common, and shall have the same rights and preferences.
Fully-paid stock of this corporation shall not be liable to any further call or
assessment.
ARTICLE V - AMENDMENT
These Articles of Incorporation may be amended by the affirmative vote
of "a majority" of the shares entitled to vote on each such amendment.
ARTICLE VI - SHAREHOLDERS RIGHTS
The authorized and treasury stock of this corporation may be issued at
such time, upon such terms and conditions and for such consideration as the
Board of Directors shall determine. Shareholders shall not have pre-emptive
rights to acquire unissued shares of the stock of this corporation.
ARTICLE VII - CAPITALIZATION
This corporation will not commence business until consideration of a
value of at least $1,000 has been received for the issuance of said shares.
<PAGE>
ARTICLE VIII - INITIAL OFFICE AND AGENT
The address of this corporation's initial registered office and the
name of its initial registered agent at such address is:
Name Of Agent Address of Registered Office
------------- ----------------------------
Don J. Colton 1675 East 11245 South
Sandy, Utah 84070
ARTICLE IX - DIRECTORS
The directors are hereby given the authority to do any act on behalf of
the corporation by law and in each instance where the Business Corporation Act
provides that the directors may act in certain instances where the Articles of
Incorporation authorize such action by the directors, the directors are hereby
given authority to act in such instances without specifically enumerating each
potential action or instance herein.
The directors are specifically given the authority to mortgage or
pledge any or all assets of the business without stockholder's approval.
The number of directors constituting the initial Board of Directors of
this Corporation is three. The names and addresses of persons who are to serve
as Directors until the first annual meeting of stockholder's or until their
successors are elected and qualified, are:
Name Address
----- -------
Don J. Colton 1675 East 11245 South
Sandy, UT 84070
Larry G. Colton 1865 Lincoln Lane
Holladay, UT 84117
Gregg B. Colton 1849 North 200 West #327
Provo, Utah 84601
ARTICLE X - INCORPORATORS
The name and address of each incorporator is:
Name Address
---- -------
Don J. Colton 1675 East 11245 South
Sandy, UT 84070
Larry G. Colton 1865 Lincoln Lane
Holladay, UT 84117
Gregg B. Colton 1849 North 200 West #327
Provo, Utah 84601
<PAGE>
ARTICLE XI
COMMON DIRECTORS - TRANSACTIONS BETWEEN CORPORATIONS
No contract or other transactions between this corporation and any one
or more of its directors or any other corporation, firm, association, or entity
in which one or more of its directors or officers are financially interested,
shall be either void or voidable because of such relationship or interest, or
because such director or directors are present at the meeting of the Board of
Directors, or a committee thereof, which authorizes, approves, or ratifies such
contract or transaction, or because his, her or their votes are counted for such
purpose if: (a) the fact of such relationship or interest is disclosed or known
to the Board of Directors or committee which authorizes, approves, or ratifies
the contract or transaction by vote or consent sufficient for the purpose
without counting the votes or consents of such interested director; or (b) the
fact of such relationship or interest is disclosed or known to the stockholders
entitled to vote and they authorize, approve or ratify such contract or
transaction by vote or written consent, or (c) the contract or transaction is
fair and reasonable to the corporation.
Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or committee thereof
which authorized, approves, or ratifies such contract or transaction.
ARTICLE XII - BY-LAWS
By-Laws of this corporation shall be adopted by its Board of Directors,
which shall also have the power to alter, amend or repeal the By-Laws or to
adopt new By-Laws; subject, however to the power of the shareholders to alter,
repeal or adopt new By-Laws for the corporation.
ARTICLE XIII - NO CUMULATIVE VOTING
At any election for directors, no shareholders shall have the right to
cumulate his votes by giving one candidate as many votes as the number of
directors to be elected, and for whose election he has a right to vote,
multiplied by the number of his shares, nor shall any shareholder have the right
to cumulate his votes by distributing such votes on the same principle among any
number of such candidates.
*****
Under penalties of perjury, we declare that these Articles of
Incorporation have been examined by us and are, to the best of our knowledge and
belief, true, correct and complete.
DATED this 14th day of October, 1980.
/s/ Don J. Colton
-----------------------------------------
INCORPORATOR - DON J. COLTON
/s/ Larry G. Colton
-----------------------------------------
INCORPORATOR - LARRY G. COLTON
/s/ Gregg B. Colton
-----------------------------------------
INCORPORATOR - GREGG B. COLTON
<PAGE>
ARTICLES OF AMENDMENT TO THE
ARTICLES OF INCORPORATION OF
PIONEER OIL AND GAS
Pursuant to the provisions of Section 16-10-54 et seq. of the Utah Code
Annotated, 1953 as amended, Pioneer Oil and Gas adopts the following Articles of
Amendment to its Articles of Incorporation:
FIRST
The following amendment to the Articles of Incorporation was adopted by
the shareholders of Pioneer Oil and Gas on July 22, 1991, in the manner
prescribed by the Utah Code Annotated, 1953 as amended, and is an added Article,
number XIV, to the Articles of Incorporation of Pioneer Oil and Gas:
ARTICLE XIV
A director of the Company shall have no personal liability to the
corporation or its shareholders for monetary damages for breach of fiduciary
duty. However, this provision shall not eliminate or limit the liability of a
director of the corporation:
(a) For any breach of the director's duty of loyalty to the
corporation or its shareholders;
(b) For acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law;
(c) For actions under Section 16-10-44 of the Utah Code ANN. (as
amended); or
(d) For any transaction from which the director derived an improper
personal benefit.
SECOND
The number of common shares issued and outstanding of Pioneer Oil and
Gas and entitled to vote at the time of the adoption of the above referenced
amendment was 31,586,885.
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THIRD
A quorum was present at the stockholder's meeting either by person or
proxy held on July 22, 1991 and that the amendment referred to and adopted above
by the Corporation received 22,235,387 shares in favor of the amendment with
831,200 shares voting against the amendment and 115,700 shares abstaining.
IN WITNESS WHEREOF, these Articles of Amendment to the Articles of
Incorporation of Pioneer Oil and Gas have been executed this _7th__ day of
__October____, 1991, by the undersigned officers of the Corporation.
ATTEST:
/s/ Gregg B. Colto by: /s/ Don J. Colton
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Gregg B. Colton, Secretary Don J. Colton, President
BYLAWS OF
PIONEER OIL AND GAS
ARTICLE I - IDENTIFICATION
1. NAME
The name of the corporation is Pioneer Oil and Gas (the "Corporation").
2. OFFICES
The principal office of the corporation in the State of Utah shall be
located in the City of Salt Lake, County of Salt Lake. The corporation may have
such other offices, either within or without the State of Utah as the Board
Directors may designate or as the business of the corporation may require from
time to time.
The registered office of the corporation required by the Utah Business
Corporation Act to be maintained in the State of Utah may be, but need not be,
identical with the principal office in the State of Utah, and the address of the
registered office may be changed from time to time by the Board of Directors.
3. CORPORATE SEAL
The Board of Directors shall provide a corporate seal which shall be
circular in form and shall have inscribed thereon the name of the corporation,
the state of incorporation, and the words "Corporate Seal."
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ARTICLE II - SHAREHOLDERS
1. ANNUAL MEETING
The annual meeting of the shareholders shall be held on a day
designated by the Board of Directors during the second week in the month of
January in each year, for the purpose of electing directors and for the
transaction of such other business as may come before the meeting. If the
election of directors shall not be held on the day designated herein for any
annual meeting of the shareholders, or at any adjournment thereof, the Board of
Directors shall cause the election to be held at a special meeting of the
shareholders as soon thereafter as conveniently may be.
2. SPECIAL MEETINGS
Special meetings of the stockholders, for any purpose or purposes,
unless otherwise prescribed by statute, may be called by the President or by a
majority of the Directors, and shall be called by the President at the request
of the holders of not less than twenty percent of all the outstanding shares of
the corporation entitled to vote at the meeting.
3. PLACE OF MEETING
The Board of Directors may designate any place, either within or
without the State of Utah, as the place of meeting for any annual meeting or for
any special meeting called by the Board of Directors. A waiver of notice signed
by all shareholders entitled to vote at a meeting may designate any place,
either within or without the State of Utah, as the place for the holding of such
meeting. If no designation is made, or if a special meeting be otherwise called,
the place of meeting shall be the registered office of the corporation in the
State of Utah.
4. NOTICE OF MEETING
Written or printed notice stating the place, day and hour of the
meeting and, in case of a special meeting, the purpose or purposes for which the
meeting is called, shall be delivered not less than ten nor more than fifty days
before the date of the meeting, either personally or by mail, by or at the
direction of the president, or the secretary, or the officer of persons calling
the meeting, to each stockholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the United
Stated mail, addressed to the stockholder at his address as it appears on the
stock transfer books of the corporation, with postage thereon prepaid.
5. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE
For the purpose of determining shareholders entitled to notice of or to
vote at any meeting of shareholders or any adjournment thereof, or shareholders
entitled to receive payment of any dividend, or in order to make a determination
of shareholders for any other proper purpose, the Board of Directors of the
corporation may provide that the stock transfer books shall be closed for a
stated period but not to exceed, in any case, fifty days. If the stock transfer
books shall be closed for the purpose of determining shareholders entitled to
notice of or to vote at a meeting of shareholders, such books shall be closed
for at least ten days immediately preceding such meeting. In lieu of closing the
stock transfer books, the Board of Directors may fix in advance a date as the
record date for any such determination of shareholders, such date in any case to
be not more than fifty days and, in case of a meeting of shareholders, not less
than ten days prior to the date on which the particular action, requiring such
determination of shareholders, is to be taken. If the stock transfer books are
not closed and no record date is fixed for the determination of shareholders
entitled to notice of or to vote at a meeting of shareholders, or shareholders
entitled to receive payment of a dividend, the date on which notice of the
meeting is mailed or the date on which resolution of the Board of Directors
declaring such dividend is adopted, as the case may be, shall be the record date
for such determination of shareholders. When a determination of shareholders
entitled to vote at any meeting of shareholders has been made as provided in
this section, such determination shall apply to any adjournment thereof.
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6. VOTING LISTS
The officer or agent having charge of the stock transfer books for
shares of the corporation shall make, at least ten days before each meeting of
shareholders, a complete list of the shareholders entitled to vote at such
meeting, or any adjournment thereof, arranged in alphabetical order, with the
address of and the number of shares held by each, which list, for a period of
ten days prior to such meeting, shall be kept on file at the registered office
of the corporation and shall be subject to inspection by any shareholder at any
time and place of the meeting and shall be subject to the inspection of any
shareholder during the whole time of the meeting. The original stock transfer
book shall be prima facie evidence as to who are the shareholders entitled to
examine such list or transfer books or to vote at any meeting of shareholders.
7. QUORUM
A majority of the outstanding shares of the corporation entitled to
vote, represented in person or by proxy, shall constitute a quorum at a meeting
of shareholders. If less than a majority of the outstanding shares are
represented at a meeting, a majority of the shares so represented may adjourn
the meeting from time to time without further notice. At such adjourned meeting
at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. The shareholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum.
8. PROXIES
At all meetings of stockholders, a stockholders may vote by proxy
executed in writing by the stockholders or by his duly authorized attorney in
fact. Such proxy shall be filed with the secretary of the corporation before or
at the time of the meeting.
9. VOTING
Each shareholder entitled to vote in accordance with the terms and
provisions of the certificate of incorporation and these by-laws shall be
entitled to one vote, in person or by proxy, for each share of stock entitled to
vote held by such shareholders. Upon the demand of any stockholder, the vote for
directors and upon any question before the meeting shall be by ballot. All
elections for directors shall be decided by plurality vote; all other questions
shall be decided by majority vote except as otherwise provided by the
Certificate of Incorporation or the laws of this State.
10. INFORMAL ACTION BY SHAREHOLDERS
Any action required to be taken at a meeting of the shareholders, or
any action which may be taken at a meeting of the shareholders, may be taken
without a meeting if a consent in writing, setting forth the action so taken,
shall be signed by all of the shareholders entitled to vote with respect to the
subject matter thereof.
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11. NON-CUMULATIVE VOTING
At each election for directors every shareholder entitled to vote at
such election shall have the right to vote, in person or by proxy, the number of
shares owned by him for as many persons as there are directors to be elected and
for whose election he has a right to vote; however, no shareholder shall have
the right to cumulate his votes by giving one candidate as many votes as the
number of such directors multiplied by the number of his shares shall equal, or
by distributing such votes on the same principle among any number of candidates.
ARTICLE III - BOARD OF DIRECTORS
1. GENERAL POWERS
The business and affairs of the corporation shall be managed by its
board of directors. The directors shall in all cased act as a board, and they
may adopt such rules and regulations for the conduct of their meetings and the
management of the corporation, as they may deem proper, not inconsistent with
these by-laws and the laws of this State.
2. NUMBER, TENURE AND QUALIFICATIONS
The number of directors of the corporation shall be at least three, but
not more than seven. Each director shall hold office until the next annual
meeting of shareholders and until his successor shall have been elected and
qualified. Directors need not be residents of the State of Utah or shareholders
of the corporation.
3. VACANCIES
Any vacancy occurring in the Board of Directors may be filled by the
affirmative vote of a majority of the remaining directors though less than a
quorum of the Board of Directors. A director elected to fill a vacancy shall be
elected for the unexpired term of his predecessor in office. Any directorship to
be filled by reason of an increase in the number of directors shall be filled by
election at an annual meeting or at a special meeting of shareholders called for
that purpose.
4. PLACE OF MEETING
Meetings of the Board of Directors, annual, regular, or special, may be
held either within or without the State of Utah.
5. ANNUAL MEETINGS
The Board of Directors shall meet each year immediately after the
annual meeting of the shareholders, at the registered office of the Corporation,
for the purpose of organization, election of officers, and consideration of any
other business that may properly be brought before the meeting. No notice of any
kind to either old or new members of the Board of Directors for this annual
meeting shall be necessary.
6. MANNER OF ACTING
At all meetings of the Board of Directors, each Director shall have one
vote. The act of a majority present at a meeting shall be the act of the Board
of Directors, provided a quorum is present.
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7. QUORUM AND TIE BREAKING
A majority of the members of the Board of Directors shall constitute a
quorum for the transaction of business, but less than a quorum may adjourn any
meeting from time to time until a quorum shall be present, whereupon the meeting
may be held, as a meeting of the Board of Directors. The Chairman of the Board
shall in the case of an equality of votes have an additional casting vote to be
a tiebreaker.
8. CHAIRMAN
The Board of Directors may elect from its own number a Chairman of the
Board, who shall preside at all meetings of the Board of Directors, and shall
perform such other duties as may be prescribed from time to time by the Board of
Directors.
9. RESIGNATION
A Director may resign at any time by delivering written notification
thereof to the President or Secretary of the Corporation. Resignation shall
become effective upon its acceptance by the Board of Directors; provided,
however, that if the Board of Directors has not acted thereon within ten days
from the date of its delivery, the resignation shall upon the tenth day be
deemed accepted.
10. PRESUMPTION OF ASSENT
A Director of the Corporation who is present at a meeting of the Board
of Directors at which action on any corporate matter is taken shall be presumed
to have assented to the action taken unless his dissent shall be entered in the
minutes of the meeting or unless he shall file his written dissent to such
action with the person acting as the secretary of the meeting before the
adjournment thereof or shall forward such dissent by registered mail to the
Secretary of the Corporation immediately after the adjournment of the meeting.
Such right to dissent shall not apply to a Director who voted in favor of such
action.
11. COMPENSATION
By resolution of the Board of Directors, the Directors may be paid
their expenses, if any, of attendance at each meeting of the Board of Directors,
and may be paid a fixed sum for attendance at each meeting of the Board of
Directors or a stated salary as Director. No such payment shall preclude any
Director from serving the Corporation in any other capacity and receiving
compensation therefore.
ARTICLE IV - OFFICERS
1. NUMBER
The officers of the corporation shall be a President, one or more
Vice-Presidents (the number, thereof, to be determined by the Board of
Directors), a Secretary and a Treasurer, each of whom shall be elected by the
Board of Directors. Such other officers and assistant officers as may be deemed
necessary may be elected or appointed by the Board of Directors. Any two or more
offices may be held by the same person, except the offices of President and
Secretary.
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2. ELECTION AND TERM OF OFFICE
The officers of the corporation to be elected by the directors shall be
elected annually at the first meeting of the directors held after each annual
meeting of the stockholders. Each officer shall hold office until his successor
shall have been duly elected and shall have qualified or until his death or
until he shall resign or shall have been removed in the manner hereinafter
provided.
3. REMOVAL
Any officer or agent may be removed by the Board of Directors whenever
in its judgment the best interests of the Corporation will be served thereby,
but such removal shall be without prejudice to the contract rights, if any, of
the person so removed.
Election or appointment of an officer or agent shall not of itself create
contract rights.
4. VACANCIES
A vacancy in any office because of death, resignation, removal,
disqualification or otherwise, may be filled by the directors for the unexpired
portion of the term.
5. PRESIDENT
The President shall be the principal operating officer of the
corporation, and subject to the control of the Board of Directors, shall in
general supervise the day-to-day business affairs of the corporation. The
President's signature shall be mandatory on any contractual commitments or
disbursements of the corporation. He may sign, with the Secretary or any other
proper officer of the corporation thereunto authorized by the Board of
Directors, certificates for shares of the corporation, any deeds, notes,
mortgages, bonds, contracts, or other instruments which the Board of Directors
has authorized to be executed, except in cases where it shall be required by law
to be otherwise signed or executed; and in general shall perform all duties
incident to the office of President and such other duties as may be prescribed
by the Board of Directors from time to time.
6. THE VICE-PRESIDENTS
In the absence of the President or in the event of his death, inability
or refusal to act, the Vice-President (or in the event there be more than one
Vice-President, the Vice-Presidents in the order designated at the time of their
election) shall perform the duties of the President, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
President. The Vice-President shall perform such other duties as from time to
time may be assigned to him by the President or by the Board of Directors.
7. THE SECRETARY
The Secretary shall: (a) keep the minutes of the shareholders' and of
the Board of Directors' meetings in one or more books provided for that purpose;
(b) see that all notices are given in accordance with the provision of these
by-laws or as required by law; (c) be custodian of the corporate records and of
the seal of the corporation and see that the seal of the corporation is affixed
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to all documents the execution of which on behalf of the corporation under its
seal is duly authorized; (d) keep a register of the post office address of each
shareholder which shall be furnished to the Secretary by such shareholder; (e)
sign with the President, or a Vice-President, certificates for shares of the
corporation, the issuance of which shall have been authorized by resolution of
the Board of Directors; (f) have general charge of the stock transfer books of
the corporation and (g) in general perform all duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him by
the President or by the Board of Directors.
8. THE TREASURER
If required by the Board of Directors, the Treasurer shall give a bond
for the faithful discharge of his duties in such sum and with surety or sureties
as the Board of Directors shall determine. He shall: (a) have charge and custody
of and be responsible for all funds and securities of the corporation; receive
and give receipts for moneys due and payable to the corporation from any source
whatsoever and deposit all such moneys in the name of the corporation in such
banks, trust companies or other depositories as shall be selected in accordance
with the provisions of Article VI of these by-laws and (b) in general perform
all of the duties as from time to time may be assigned to him by the President
or by the Board of Directors.
9. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS
The Assistant Secretaries, when authorized by the Board of Directors,
may sign with the President or a Vice-President certificates for shares of the
corporation the issuance of which shall have been authorized by a resolution of
the Board of Directors. The Assistant Treasurers shall respectively, if required
by the Board of Directors, give bonds for the faithful discharge of their duties
in such sums and with such sureties as the Board of Directors shall determine.
The Assistant Secretaries and Assistant Treasurers, in general, shall perform
such duties as shall be assigned to them by the Secretary or the Treasurer,
respectively, or by the President or the Board of Directors.
10. SALARIES
The salaries of the officers shall be fixed from time to time by the
Board of Directors and no officer shall be prevented from receiving such salary
by reason of the fact that he is also a director of the corporation.
ARTICLE V - CONTRACTS, LOANS, CHECKS AND DEPOSITS
1. CONTRACTS
The directors may authorize any officer or officers, agent or agents,
to enter into any contract or execute and deliver any instrument in the name of
and on behalf of the corporation, and such authority may be general or confined
to specific instances.
2. LOANS
No loans shall be contracted on behalf of the corporation and no
evidences of indebtedness shall be issued in its name unless authorized by a
resolution of the directors. Such authority may be general or confined to
specific instances.
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3. CHECK, DRAFTS, ETC.
All checks, drafts or other orders for the payment of money, notes or
other evidences of indebtedness issued in the name of the Corporation, shall be
signed by two officers of the corporation, with one of the officers being the
President of the Corporation.
4. DEPOSITS
All funds of the corporation not otherwise employed shall be deposited
from time to time to the credit of the corporation in such banks, trust
companies or other depositories as the directors may select.
ARTICLE VI - CERTIFICATES FOR SHARES AND THEIR TRANSFER
1. CERTIFICATES FOR SHARES
Certificates representing shares of the corporation shall be in such
form as shall be determined by the directors. Such certificates shall be signed
by the president and by the secretary or by such other officers authorized by
law and by the directors. All certificates for shares shall be consecutively
numbered or otherwise identified. The name and address of the stockholders, the
number of shares and date of issue, shall be entered on the stock transfer books
of the corporation. All certificates surrendered to the corporation for transfer
shall be canceled and no new certificate shall be issued until the former
certificate for a like number of shares shall have been surrendered and
canceled, except that in case of a lost, destroyed or mutilated certificate a
new one may be issued therefore upon such terms and indemnity to the corporation
as the directors may prescribe.
2. TRANSFER OF SHARES
(a) Upon the surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, and cancel the old certificate; every such transfer shall be entered on
the transfer book of the corporation which shall be kept at its principal
office.
(b) The corporation shall be entitled to treat the holder of record of
any share as the holder in fact thereof, and, accordingly shall not be bound to
recognize any equitable or other claim to or interest in such share on the part
of any other person whether or not it shall have express or other notice
thereof, except as expressly provided by the laws of this state.
ARTICLE VII - FISCAL YEAR
The fiscal year of the corporation shall begin on the first day of
October in each year and shall end on the thirtieth day of September in each
year.
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ARTICLE VIII - DIVIDENDS
The directors may from time to time declare, and the corporation may
pay, dividends on its outstanding shares in the manner and upon the terms and
conditions provided by law.
ARTICLE IX - WAIVER OF NOTICE
Unless otherwise provided by law, whenever any notice is required to be
given to any stockholder or director of the corporation under the provisions of
these bylaws or under the provisions of the articles of incorporation, a waiver
thereof in writing, signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be deemed equivalent to
the giving of such notice.
ARTICLE X - OFFICER AND DIRECTOR CONTRACTS
No contract or other transaction between this Corporation and any other
corporation shall be affected by the fact that a director or officer of this
Corporation is interested in, or is a director or other officer of such other
corporation. Any director, individually or with others, may be a party to, or
may be interested in any transaction of this Corporation or any transaction in
which this Corporation is interested. No contract or other transaction of this
Corporation with any person, firm, or corporation shall be affected by the fact
that any director of this Corporation (a) is party to, or is interested in such
contract, act or transaction; (b) is in some way connected with such person,
firm, or corporation. Each person who is now or may become a director of this
Corporation is hereby relieved from and indemnified against any liability that
might otherwise be obtained in the event such director contracts with this
Corporation for the benefit of himself or any firm, association, or corporation
in which he may be interested in any way, provided such director acts in good
faith.
ARTICLE XI - INDEMNIFICATION
1. INDEMNIFICATION
The Corporation shall indemnify any and all of its directors or
officers or former directors or former officers or any person who may serve at
its request as a 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 them in connection with the defense or settlement of
any action, suite or proceeding brought or threatened in which they, or any of
them, are or might be made parties, or a party, by reason of being or having
been directors or officers or a director or officer of the Corporation, or of
such other corporation, except in relation to matters as to which any such
director or officer or former director or officer or person shall be adjudged in
such action, suit or proceeding to be liable for negligence or misconduct in the
performance of duty. Such indemnification shall not be deemed exclusive of any
rights to which those indemnified may be entitled, under any Bylaw, agreement,
vote of stockholders, or otherwise.
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2. LEGAL FEES
The Corporation may also reimburse to any director, officer or employee
the reasonable costs of settlement of any action, suit or proceeding, if it
shall be found by a majority of a committee composed of the directors not
involved in the matter in controversy (whether or not a quorum) that it was to
the best interest of the Corporation that the settlement be made and that the
director, officer or employee was not guilty of negligence or misconduct.
ARTICLE XII - AMENDMENTS
The power to alter, amend, or repeal the Bylaws, or to adopt new Bylaws
is vested in the Board of Directors. The Bylaws may contain any provisions for
the regulation and management of the affairs of the Corporation not prohibited
by laws or the Articles of Incorporation.
IN WITNESS WHEREOF, the foregoing Bylaws were adopted and approved by
the Board of Directors at their meeting duly called and held on the 6th day of
November, 1980.
/s/ Don J. Colton
__________________________
President
/s/ Gregg B. Colton
--------------------------
Secretary
PROMISSORY NOTE
December 27, 1999
Borrower: Pioneer Oil and Gas
Lender: Zions First National Bank
Amount: $750,000.00
Maturity: December 31, 2001
For value received, Borrower promises to pay to the order of Lender at
its Commercial Loan Department in Salt Lake City, Utah, the sum of seven hundred
fifty thousand dollars ($750,000.00) or such other principal balance as may be
outstanding hereunder in lawffil money of the United States with interest
thereon at a variable rate computed on the basis of a three hundred sixty (360)
day year as follows: one percent (1.00%) per annum above the Prime Rate (herein
defined) of Lender from time to time in effect, adjusted as of the date of any
change in the Prime Rate. Upon default in payment of any principal or interest
when due, whether due at stated maturity, by acceleration, or otherwise, all
outstanding principal shall bear interest at a default rate from the date when
due until paid, both before and after judgement, which default rate shall be
three percent (3%) over annum above the foregoing variable rate, which is a
default rate of four and five-tenths percent (4.5%) per annum above the Prime
Rate.
Interest shall accrue from the date of disbursement of the principal
amount or portion thereof until paid, both before and after judgement, in
accordance with the terms set forth herein.
Principal and interest shall be payable as follows: Interest accrued is
to be paid monthly commencing February 1, 2000, and on the same day of each
month thereafter, All principal and unpaid interest shall be paid in full
December 31, 2001.
All payments shall be applied first to accrued interest and the
remainder, if any, to principal.
Prime Rate means an index which is determined daily by the published
commercial loan variable rate index held by and two of the following banks:
Chase Manhattan Bank, Well Fargo Bank N.A., and Bank of America N.T. & S. A. In
the event no two of the above banks have the same published rate, the bank
having the median rate will establish Lender's Prime Rate. If, for any reason
beyond the control of Lender, any of the aforementioned banks becomes
unacceptable as a reference for the purpose of determining the Prime Rate used
herein, Lender may, five days after posting notice in the Lender's bank offices,
<PAGE>
substitute anothero comparable bank for the one determined unacceptable. As used
in this paragraph, "comparable bank" shall mean one of the ten largest
commercial banks headquartered in the United States of America. This definition
of Prime Rate is to be strictly interpreted and is not intended to serve any
purpose other than providing an index to determine the variable interest rate
used herein. It is not the lowest rate at which Lender may make loans to any of
its customers, either now or in the future.
This Promissory Note shall be a revolving line of credit under which
Borrowers may repeatedly draw and repay funds, so long as no default has
occurred hereunder or under the Loan Agreement dated January 08, 1999, between
Lender and Borrower (the "Loan Agreement") and so long as the aggregate,
outstanding principal balance at any time does not exceed the principal amount
of this Promissory Note. Disbursement under this Promissory Note shall be made
in accordance with the Loan Agreement.
If, at any time prior to the maturity of this Promissory Note, this
Promissory Note shall have a zero balance owing, this Promissory Note shall not
be deemed satisfied or terminated but shall remain in full force and effect for
future draws unless terminated upon other grounds.
This Promissory Note is made in accordance with the Loan Agreement and
is secured by the collateral identified in and contemplated by the Loan
Agreement.
If default occurs in the payment of any principal or interest when due,
or if any Event of Default (as defined in the Loan Agreement) occurs under the
Loan Agreement, time being the essence hereof, then the entire unpaid balance,
with interest as aforesaid, shall, at the election of the holder hereof and
without notice of such election, become immediately due and payable in lull.
If this Promissory Note becomes in default or payment is accelerated,
Borrower agrees to pay to the holder hereof all collection cots, including
reasonable attorney fees and legal expenses, in addition to all other sums due
hereunder.
All obligations of Borrower under this Promissory Note shall be joint
and several.
Borrower and all endorsers, sureties and guarantors hereof hereby
jointly and severally waive presentment for payment, demand, protest, notice of
protest, notice of protest and of non-payment and of dishonor, and consent to
extensions of time, renewal, waivers or modifications without notice and further
consent to the release of any collateral or any part thereof with or without
substitution.
Borrower:
Title:
<PAGE>
. .
FIRST AMENDMENT TO PROMISSORY NOTE
This First Amendment to Promissory Note (this "Amendment") is made and
entered into by PIONEER OIL AND GAS ("Borrower") in favor of ZIONS FIRST
NATIONAL BANK ("Lender").
Recitals
WHEREAS, Lender and Borrower entered into that certain Promissory Note
dated January 8, 1999 in the original principal amount of $400,000.00 (the
"Note").
WHEREAS, Borrower desires to amend the Note by increasing the amount of
the Note to $750,000.00, and Lender has agreed to such increase provided, among
other things, Borrower executes and delivers to Lender this Amendment.
For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Note is amended as follows:
1. The amount of the Note is hereby increased to Seven Hundred Fifty
Thousand and 00/1 00 Dollars ($750,000.00).
2. Except as expressly amended by this Amendment, the Note remains in
full force and effect.
Effective Date: October 12 , 1999.
BORROWER:
Signed Don J. Colton, President
<PAGE>
PROMISSORY NOTE
January 8, 1999
Borrower: Pioneer Oil and Gas
Lender: Zions First National Bank
Amount: $400,000.00
Maturity: December 31, 1999
For value received, Borrower promises to pay to the order of Lender at
its Commercial Loan Department in Salt Lake City, Utah, the sum of four hundred
thousand dollars ($400,000.00) or such other principal balance as may be
outstanding hereunder in lawful money of the United States with interest thereon
at a variable rate computed on the basis of a three hundred sixty (360) day year
as follows: one and five-tenths percent (1.5%) per annum above the Prime Rate
(hereinafter defined) of Lender from time to time in effect, adjusted as of the
date of any change in the Prime Rate. Upon default in payment of any principal
or interest when due, whether due at stated maturity, by acceleration, or
otherwise, all outstanding principal shall bear interest at a default rate from
the date when due until paid, both before and after judgment, which default rate
shall be three percent (3%) per annum above the foregoing variable rate, which
is a default rate of four and five-tenths percent (4.5%) per annum above the
Prime Rate.
Interest shall accrue from the date of disbursement of the principal
amount or portion thereof until paid, both before and after judgment, in
accordance with the terms set forth herein.
Principal and interest shall be payable as follows: Interest accrued is
to be paid monthly commencing February 1, 1999, and on the same day of each
month thereafter. All principal and unpaid interest shall be paid in full on
December 31, 1999.
All payments shall be applied first to accrued interest and the
remainder, if any, to principal.
Prime Rate means an index which is determined daily by the published
commercial loan variable rate index held by any two of the following banks:
Chase Manhattan Bank, Wells Fargo Bank N. A., and Bank of America N. T. & S. A.
In the event no two of the above banks have the same published rate, the bank
having the median rate will establish Lender's Prime Rate. If, for any reason
beyond the control of Lender, any of the aforementioned banks becomes
unacceptable as a reference for the purpose of determining the Prime Rate used
herein, Lender may, five days after posting notice in the Lender's bank offices,
substitute another comparable bank for the one determined unacceptable. As used
<PAGE>
I
in this paragraph, "comparable bank" shall mean one of the ten largest
commercial banks headquartered in the United States of America. This definition
of Prime Rate is to be strictly interpreted and is not intended to serve any
purpose other than providing an index to determine the variable interest rate
used herein. It is not the lowest rate at which Lender may make loans to any of
its customers, either now or in the future.
This Promissory Note shall be a revolving line of credit under which
Borrowers may repeatedly draw and repay funds, so long as no default has
occurred hereunder or under the Loan Agreement dated January --` 1999, between
Lender and Borrower (the "Loan Agreement") and so long as the aggregate,
outstanding principal balance at any time does not exceed the principal amount
of this Promissory Note. Disbursements under this Promissory Note shall be made
in accordance with the Loan Agreement.
If, at any time prior to the maturity of this Promissory Note, this
Promissory Note shall have a zero balance owing, this Promissory Note shall not
be deemed satisfied or terminated but shall remain in full force and effect for
future draws unless terminated upon other grounds.
This Promissory Note is made in accordance with the Loan Agreement and
is secured by the collateral identified in and contemplated by the Loan
Agreement.
If default occurs in the payment of any principal or interest when due,
or if any Event of Default (as defined in the Loan Agreement) occurs under the
Loan Agreement, time being the essence hereof, then the entire unpaid balance,
with interest as aforesaid, shall, at the election of the holder hereof and
without notice of such election, become immediately due and payable in full.
If this Promissory Note becomes in default or payment is accelerated,
Borrower agrees to pay to the holder hereof all collection costs, including
reasonable attorney fees and legal expenses, in addition to all other sums due
hereunder.
All obligations o.f Borrower under this Promissory Note shall be joint
and several.
Borrower and all endorsers, sureties and guarantors hereof hereby
jointly and severally waive presentment for payment, demand, protest, notice of
protest, notice of protest and of non-payment and of dishonor, and consent to
<PAGE>
extensions of time, renewal, waivers or modifications without notice and further
consent to the release of any collateral or any part thereof with or without
substitution.
Borrower:
Pioneer Oil and Gas
By:signed Don J. Colton
Title:President______________
<PAGE>
THIRD LOAN EXTENSION AND MODIFICATION AGREEMENT
In consideration of the promises contained in this Third Loan Extension
and Modification Agreement (the "Third Extension and Modification Agreement"),
ZIONS FIRST NATIONAL BANK, a national association ("Zions Bank"), PIONEER OIL
AND GAS, a Utah corporation ("Pioneer"), each referred to as a "Party" and both
collectively referred to as the "Parties" to this Third Extension and
Modification Agreement, agree as follows:
1. Pioneer has a term loan (the "Term Loan") with Zions Bank, Loan No.
7360088-9004, in the original principal amount of $1,255,000.00, evidenced and
governed by numerous loan documents (collectively the "Loan Documents"),
including without limitation the following documents:
A. Business Loan Agreement, dated April 25, 1991;
B. First Amendment to Business Loan Agreement, dated May
1, 1992;
C. Second Amendment to Business Loan Agreement, dated
March 31, 1993;
D. Third Amendment to Business Loan Agreement, dated May
16, 1994;
E. Promissory Note, dated May 16, 1994, in the original
principal amount of $750,000.00;
F. Change in Terms Agreement, dated April 25, 1995;
G. Change in Terms Agreement, dated January 22, 1996;
H. Amendment to Business Loan Agreement, dated May 3,
1996;
I. Inventory and Accounts Receivable Security Agreement,
dated April 14, 1988;
J. Addendum to the Inventory and Accounts Receivable
Security Agreement, dated April 12, 1990;
K. Arbitration Addendum, dated May 1, 1992;
L. Mortgage, Deed of Trust, Security Agreement,
Assignment, Financing Statement and Fixture Filing
from Pioneer to First American Title Company of Utah,
as Trustee, and Zions Bank, dated as of January 22,
1996, and recorded and filed as follows: (1) by the
Clerk of Crook County, Wyoming, on January 29, 1996,
as Entry No. 521712, in Book 341, at Pages 232-253;
<PAGE>
(2) by the Recorder of San Juan County, Utah, on
January 25, 1996, as Entry No. 1J011855, in Book 749,
at Pages 275-296; and (3) in the Uniform Commercial
Code Records of the Clerk of Crook County, Wyoming,
on January 29, 1996, as Document No. 31350;
M. Letter of transmittal, dated January 24, 1996, from
Kimball, Parr, Waddoups, Brown & Gee, counsel to
Pioneer, to the Utah Department of Trust Land
Administrators, to which the Mortgage, Deed of Trust,
Security Agreement, Assignment, Financing Statement
and Fixture Filing described in subparagraph L above
is attached;
N. Financing Statement, filed as follows: (1) with the
Utah Department of Commerce, Division of Corporations
and Commercial Code on January 24, 1996, as File No.
96-506301; and (2) with the Wyoming Secretary of
State's office on January 25, 1996, as Document ID
No. 9602511 1B06;
0. Mortgage, Deed of Trust, Security Agreement,
Assignment, Financing Statement and Fixture Filing
from Pioneer to First American Title Company of Utah,
as Trustee, and Zions Bank, dated April 5, 1996,
recorded and filed as follows: (1) in Mesa County,
Colorado; (2) in Rio Blanco County, Colorado on May
23, 1996, as Entry No. 257385, in Book B-524, at
Pages 1-26; (3) in Grand County, Utah, on May 10,
1996, as Entry No. 436692, in Book 487, at Pages
212-237; (4) in San Juan County, Utah, on May 13,
1996, as Entry No. 1J012755, in Book 751, at Pages
721-746; (5) in Crook County, Wyoming, on May 13,
1996, as Entry No. 523224 in Book 343, at Pages
113-138; (6) in Fremont County, Wyoming, on May 13,
1996, as Entry No. 1172008, in Book 731, at Pages
501-526; (7) in the Uniform Commercial Code Records
of Crook County, Wyoming, on May 13, 1996, as File
No. 31669; and (8) in the Uniform Commercial Code
Records of Fremont County, Wyoming, on May 14, 1996,
as File No. U 246054;
P. Letter of transmittal, dated May 13, 1996, from
Kimball, Parr, Waddoups, Brown & Gee, counsel to
Pioneer, to the Utah Department of Trust Land
Administrators, to which the Mortgage, Deed of Trust,
Security Agreement, Assignment, Financing Statement
and Fixture Filing described in subparagraph 0 above
is attached;
Q. First Amendment to the Mortgage, Deed of Trust,
Security Agreement, Assignment, Financing Statement
and Fixture Filing described in subparagraph L [not 0
as mistakenly stated in the Extension and
Modification Agreement] above, recorded and filed as
follows: (1) in San Juan County, Utah, on May 13,
1996, as Entry No. lJ0127S4, in Book 751, at Pages
713-720; (2) in Crook County, Wyoming, on May 13,
1996, as Entry No. 523226, in Book 343, at Page
139-146; and (3) in Crook County, Wyoming, on May 13,
1996 as Entry No. 523227;
<PAGE>
R. Financing Statement, filed as follows: (1) with the
Colorado Secretary of State's Office, on May 14,
1996, as File No. 962037452; (2) with the Utah
Department of Commerce, Division of Corporations and
Commercial Code, on May 1, 1996, as File No.
96-518334; and (3) with the Wyoming Secretary of
State's office, on May 1, 1996, as Document ID No.
9612211 lAO6;
S. Loan Extension and Modification Agreement, dated June
25, 1997 (the "Extension and Modification Agreement")
T. Mortgage, Deed of Trust, Security Agreement,
Assignment, Financing Statement and Fixture Filing,
which adds collateral located in Campbell County,
Wyoming (and correctly describes a well known as
Pittman No. 22-24 rather than Pittman No. 22-44 as
mistakenly stated in the Extension and Modification
Agreement), recorded and filed in Campbell County,
Wyoming;
U. First Amendment to Mortgage, Deed of Trust, Security
Agreement, Assignment, Financing Statement and
Fixture Filing, which amends the document described
in subparagraph 0 of paragraph 1 above by adding
additional collateral located in the Badger Wash Unit
in Mesa County, Colorado, and reflecting previous
amendments to the Loan Documents, recorded and filed
in Mesa County, Colorado on October 31, 1997, as
Entry No. 1818546 in Book.2371, at Page 904;
V. Third Amendment to Mortgage, Deed of Trust, Security
Agreement, Assignment, Financing Statement and
Fixture Filing, which amends the documents described
in subparagraphs L and Q above by reflecting previous
amendments to the Loan Documents;
W. A new Financing Statement; and
X. Second Loan Modification Agreement dated October 29,
1997.
<PAGE>
2. The Loan Documents evidence valid, fully-enforceable indebtedness
and obligations of Pioneer in favor of Zions Bank, and create valid,
properly-perfected and fully-enforceable liens and security interests in favor
of Zions Bank in the collateral described in the Loan Documents.
3. Subject to the terms and conditions of this Third Extension and
Modification Agreement, the Parties desire to modify the terms and conditions of
the Term Loan, all without interrupting or otherwise adversely affecting the
validity, priority or enforceability of Zions Bank's liens and security
interests created under, evidenced by or described in the Loan Documents.
4. Concurrently with the execution and delivery of this Third Extension
and Modification Agreement, Zions Bank and Pioneer are entering into a Loan
Agreement pursuant to which Zions Bank shall establish in favor of Pioneer a
revolving line of credit in the maximum principal amount of $400,000.00 (the
"Revolving Line of Credit").
5. The Parties represent and warrant to each other that, in deciding to
enter into this Third Extension and Modification Agreement, they each:
A. made their own due diligence investigation and
evaluation;
B. had all of the information they needed;
C. did not rely on any statements, acts or omissions
except as expressly set forth in this Extension and
Modification Agreement;
D. were not acting under any duress, compulsion or undue
influence; and
E. were advised by independent legal counsel.
6. By this Third Extension and Modification Agreement, the Loan
Documents are modified as follows:
A. The maturity date of the Term Loan is extended from
December 1, 1998 to December 1, 1999. All unpaid
amounts owing on the Term Loan shall become
immediately due and payable on December 1, 1999;
B. The original principal amount of the Term Loan is
reduced from $1,255,000.00 to $1,000,000.00.
Concurrently with the execution of this Third
Extension and Modification Agreement, Pioneer shall
borrow sufficient amounts under the Revolving Line of
Credit to make a payment of the Term Loan in the
amount of $255,000.00 in order to reduce the
outstanding principal amount of the Term Loan to
$1,000,000.00;
<PAGE>
C. The interest rate on the Term Loan shall be 8.85% per
annum. Interest shall be payable on the first (1st)
day of each month until December 1, 1999, on which
date all amounts owing on the Term Loan and under the
Loan Documents become immediately due and payable;
D. The amount of each monthly installment payment is
decreased from $26,100.00 to $16,013.06, each
successive installment being due and payable on the
first (1st) day of each successive month and
continuing until December 1, 1999, on which date all
amounts owing on the Term Loan and under the Loan
Documents become immediately due and payable;
E. Pioneer shall pay Zions Bank a loan fee of $7,000.00;
and
F. Concurrently with the execution and delivery of this
Third Extension and Modification Agreement, Pioneer
shall pay Zions Bank $1,806.25 for attorneys fees and
expenses.
7. Except as expressly modified by this Third Extension and
Modification Agreement, all of the terms and conditions of the Term Loan and the
Loan Documents shall remain in full force and effect, and, as modified by this
Third Extension and Modification Agreement, shall continue to be secured as
provided in the Loan Documents.
8. Except for express contractual obligations of Zions Bank, Pioneer
forever releases Zions Bank and all of its parent, subsidiary and affiliated
corporations and entities, past, present and future, and each of them, as well
as their respective partners, directors, officers, agents, servants, employees
and attorneys, past, present and future, and each of them, from any and all
claims, demands, damages, losses, liabilities and causes of action, of whatever
kind or nature, whether known or unknown, whether suspected or unsuspected, and
whether related, directly or indirectly, or wholly unrelated to the Term Loan.
9. With respect to the Term Loan, the Loan Documents, as modified by
this Third Extension and Modification Agreement, and the other agreements,
documents, obligations and transactions contemplated by this Third Extension and
Modification Agreement constitute the entire agreement between Zions Bank and
Pioneer, and may not be altered or amended except by written agreement signed by
Zions Bank and Pioneer. PURSUANT TO UTAH CODE SECTION 25-5-4, PIONEER IS
NOTIFIED THAT THESE AGREEMENTS ARE A FINAL EXPRESSION OF THE AGREEMENTS BETWEEN
ZIONS BANK AND PIONEER, AND MAY NOT BE CONTRADICTED BY EVIDENCE OF ANY ALLEGED
ORAL AGREEMENT. With respect to the Term Loan and except as otherwise expressly
provided herein, all prior and contemporaneous agreements, arrangements and
understandings between Zions Bank and Pioneer are rescinded.
<PAGE>
Signed : by: Don J .Colton
President
DATED: January 8, 1999
ZIONS FIRST NATIONAL BANK
PIONEER OIL AND GAS
By:
Title
<PAGE>
FIRST AMENDMENT TO LOAN AGREEMENT
This First Amendment to Loan Agreement (this "Amendment") is made and
entered into by and between ZIONS FIRST NATIONAL BANK ("Lender") and PIONEER OIL
ANT) GAS, a Utah corporation ("Borrower").
Recitals
--------
A. Lender and Borrower entered into that certain Loan Agreement dated
January 8, 1999
(the "Loan Agreement").
B. Lender and Borrower desire to amend the Loan Agreement as provided
herein.
Amendment
---------
For good and valuable consideration, the receipt and sufficiency of
which are herebyacknowledged, Lender and Borrower hereby agree and amend the
Loan Agreement as follows:
1. Definitions. Except as otherwise expressly provided herein, terms
assigned defmed meanings in the Loan Agreement shall have the same defined
meanings in this Amendment.
2. Amended Defmitions. The definition of "Maximum Commitment" in
Section 1.1 of the Loan Agreement is amended in its entirety to read as follows:
"Maximum Commitment" means, at any time, the lesser of (i)
Seven Hundred Fifty Thousand Dollars ($750,000.00), or (ii) the
Borrower Base.
3. Section 2.1. Amount of Loan. Section 2.1(a) of the Loan Agreement is
amended in its entirety to read as follows:
Section 2.1. Amount of Loan
(a) Upon fulfillment of all conditions precedent set forth in
this Loan Agreement. and so long as no Event of Default exists, and no
other breach has occurred under this Loan Agreement or any Loan
Documents, Lender agrees to make a loan to Borrower which shall consist
of a revolving line of credit in the original maximum principal amount
of Seven Hundred Fifty Thousand Dollars ($750,000.00).
4. Representations and Warranties. As of the date of this Amendment,
Borrower hereby affirms and again makes the representations and warranties set
forth in Article 6 Representations and Warranties of the Loan Agreement.
5. Authorization. Borrower represents and warrants that the execution,
delivery, and performance by Borrower of this Amendment and all agreements,
documents, obligations, and transactions herein contemplated have been duly
authorized by all necessary corporate action on the part of Borrower and are not
inconsistent with Borrower's Articles of Incorporation, By-Laws, or any
resolution of the Board of Directors, do not and will not contravene any
provision of, or constitute a default under, any indenture, mortgage, contract,
or other instrument to which Borrower is a party or by which Borrower is bound,
and that upon execution and delivery hereof, this Amendment will constitute a
legal, valid, and binding agreement and obligation of Borrower, enforceable in
accordance with its terms.
<PAGE>
6. Payment of Expenses and Attorney's Fees. Borrower shall pay all
reasonable expenses of Lender relating to the negotiation, drafting of
documents, and documentation of this Amendment, including, without limitation,
title insurance, recording fees, filing fees, and reasonable attorney's fees and
legal expenses. If such expenses are not promptly paid, Lender is authorized and
directed, upon execution of this Amendment and fulfillment of all conditions
precedent hereunder, to disburse a sufficient amount of the Loan proceeds to pay
in full these expenses.
7. Conditions to Amendment. This Amendment shall become valid,
binding, and enforceable only upon satisfaction of the following conditions. All
of the documents referred to below must be in a form and substance acceptable to
Lender.
a. This Amendment and all other documents requested by Lender
shall have been fully executed and delivered to Lender.
b. All of the documents requested by Lender which require
filing or recording have been properly filed and recorded so that all
of the liens and security interests granted to Lender in connection
with the Loan will be properly created and perfected and will have a
priority acceptable to Lender.
All conditions precedent set forth in this Amendment are for the sole
benefit of Lender and may be waived unilaterally by Lender.
8. Loan Agreement Remains in Full Force and Effect. Except as
expressly amended by this Amendment, the the Loan Agreement remains in full
force and effect.
9. Integrated Agreement; Amendment. This Amendment, together with the
Loan Agreement and the other agreements, documents, obligations, and
transactions contemplated by the Loan Agreement and this Amendment, constitute
the entire agreements and understandings between the parties and supersede all
other prior and contemporaneous agreements and may not be altered or amended
except by written agreement signed by the parties. This Amendment and the Loan
Agreement shall be read and interpreted together as one agreement. PURSUANT TO
UTAH CODE SECTION 25-5-4, BORROWERS ARE NOTIFIED THAT THESE AGREEMENTS ARE A
FINAL EXPRESSION OF THE AGREEMENT BETWEEN LENDER AND BORROWERS AND THESE
AGREE-MENTS MAY NOT BE CONTRADICTED BY EVIDENCE OF ANY ALLEGED ORAL AGREEMENT.
All other prior and contemporaneous agreements, arrangements, and understandings
between the parties hereto as to the subject matter hereof are, except as
otherwise expressly provided herein, rescinded.
<PAGE>
.
Dated: October 12 ,1999.
LENDER:
ZIONS FIRST NATIONAL BANK
By:
Brett L. Eliason
Vice President
BORROWER:
PIONEER OIL AND GAS
By:
Don J. Colton
Title: President
<PAGE>
LOAN AGREEMENT
This Loan Agreement is made and entered into by and between ZIONS
FIRST NATIONAL BANK, a national banking association (hereinafter "Lender"), and
PIONEER OIL AND GAS, a Utah corporation (hereinafter "Borrower")
For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Lender and Borrower agree as follows:
Article 1 - Definitions
-----------------------
Section 1.1. Definitions
- -------------------------
Terms defined in the singular shall have the same meaning when used in
the plural and vice versa. As used herein, the term:
"Banking Business Day" means any day not a Saturday, Sunday, legal
holiday in the State of Utah, or day on which national -banks in the State of
Utah are authorized to close.
"Borrower Reserve Report" means a report prepared by Borrower which
sets forth the estimated oil and gas reserves, production and future net income
of Borrower's proven properties and interests.
"Borrowing Base" means fifty percent (50%) of the net present value
(using a 10% discount rate) of Borrower's Reserves included in the Collateral as
determined by Lender, less the outstanding principal amount of the term loan
outstanding under the Term Loan Agreement. The Borrowing Base will be based upon
the actual price per barrel that Borrower sells its oil at each well on the date
that the Borrowing Base is initially determined or redetermined, as the case may
be, or as close thereto as such information is available, and the average cost
of gas per MCF during the preceding twelve months. For purposes of this
Agreement, the initial "Borrowing Base" shall be based on the estimated amount
of the Borrower's Reserves as set forth in the most recently delivered
Engineering Report under the Term Loan Agreement. The Borrowing Base shall be
adjusted from time to time as provided in Section 2.6 Borrowing Base.
"Borrower's Reserves" means the proved, developed and producing oil
and gas reserves of Borrower.
<PAGE>
"Borrower Reserves Report" means a report prepared by Borrower which
sets forth the estimated oil and gas reserves, production and future net income
of Borrower's proven properties and Interests.
"Closing Date" shall mean the date the parties intend this Loan
Agreement to become binding and enforceable, which is the date stated at the
conclusion of this Loan Agreement.
"Collateral" shall have the meaning set forth in Section 3.1
Collateral.
"Engineering Report" means an independent review by an engineering
firm acceptable to Lender of the Borrower Reserve Reports.
"Event of Default" shall have the meaning set forth in Section 8.1
Events of Default.
"Hazardous Materials" shall have the meaning set forth in Section 6.9
Hazardous Materials.
"Hydrocarbons" shall have the meaning set forth in Section 2.1(b).
"Interests" shall have the meaning set forth in Section 2.1(b).
"Loan" means the loan to be made pursuant to Article 2 Loan
Description.
"Loan Agreement" means this agreement, together with any exhibits,
amendments, addendums, and modifications.
"Loan Documents" means all security agreements, assignments, pledges,
deeds of trust, mortgages, and other documents which create or evidence any
security interest, assignment, lien or other encumbrance in'favor of Lender to
secure any or all of the obligations created or contemplated by this Loan
Agreement, the Promissory Note, the Loan Documents, or any other agreements,
documents, obligations, and transactions contemplated by this Loan Agreement.
"Loan Origination Fee" means the loan origination fee described in
Section 2.4 of this Agreement.
"Maximum Commitment" means, at any time, the lesser of (i) Four
Hundred Thousand Dollars ($400,000.00), or (ii) the Borrowing Base.
<PAGE>
"Promissory Note" means the promissory note to be executed by Borrower
pursuant to Section 2.3 Promissory Note in the form of Exhibit A hereto, which
is incorporated herein by reference, and any and all renewals, extensions,
modifications, and replacements thereof.
"Real Property" shall have the meaning set forth in Section 6.9
Hazardous Materials.
"Term Loan Agreement" shall have the meaning set forth in Section 2.5
Term Loan.
Article 2 - Loan Description
----------------------------
Section 2.1. Amount of Loan
- ----------------------------
(a) Upon fulfillment of all conditions precedent set forth in this
Loan Agreement, and so long as no Event of Default exists, and no other breach
has occurred under this Loan Agreement or any Loan Documents, Lender agrees to
make a loan to Borrower which shall consist of a revolving line of credit in the
original maximum principal amount of Four Hundred Thousand Dollars ($400,000.00)
(b) If at any time the total outstanding principal balance of the Loan
should be in excess of the Maximum Commitment, or if an Event of Default occurs
and is continuing, Lender will be entitled to collect all of the severed and
extracted oil, gas, casinghead gas and other hydrocarbons, whether solid, liquid
or gaseous, and all other related substance ("Hydrocarbons") in or attributable
to any of the right, title, and interest of Borrower, whether now owned or
hereafter acquired, in any mineral estates, leasehold estates, oil and gas
leases, oil, gas and mineral leases, licenses, subleases, and sublicenses
covering lands from which such Hydrocarbons are produced (the "Interests"),
together with all of the proceeds thereof. Borrower hereby authorizes and
directs all parties producing, purchasing, receiving or having in their
possession any such Hydrocarbons or proceeds to treat and regard Lender as the
party entitled, in Borrower's place and stead, to receive such Hydrocarbons and
proceeds, and such parties shall be fully protected in so treating and regarding
Lender and shall be under no obligation to see to the application by Lender of
any such proceeds received by it. In addition, Borrower agrees that upon
Lender's request it will promptly execute and deliver to Lender such transfer
orders, payment orders, division orders and other instruments as Lender may deem
<PAGE>
necessary, convenient or appropriate in connection with the payment and delivery
to Lender of all proceeds, production, and payments.
Section 2.2. Nature and Duration of Loan
- -----------------------------------------
The Loan shall be a revolving line of credit payable in full upon the
date and upon the terms and conditions provided in the Promissory Note.
Section 2.3. Promissory Note
- -----------------------------
The Loan shall be evidenced by the Promissory Note of Borrower to
Lender. The Promissory Note shall be executed and delivered to Lender upon
execution and delivery of this Loan Agreement.
Section 2.4. Prepayment of Loan
- --------------------------------
Borrower may prepay all or any portion of the Loan at any time without
penalty. Any prepayment received by Lender after 2:00 p.m. mountain standard or
daylight time (whichever is in effect on the date the prepayment is received)
shall be deemed received on the following Banking Business Day.
Section 2.5. Term Loan
- -----------------------
Lender is authorized and directed to disburse a sufficient amount of
the funds pursuant to the Promissory Note to repay the Term Loan to Borrower
under the Business Loan Agreement dated April 25, 1991, as amended (the "Term
Loan Agreement"), such that the outstanding principal amount of such Term Loan
is reduced to $1,000,000.00.
Section 2.6. Borrowing Base
- ----------------------------
The Borrowing Base will be redetermined by Lender on February 1 of each
year until the Loan, and all interest accrued thereon and any expenses or costs
hereunder, have been paid in full and the commitment to make advances under this
Agreement has been terminated. In addition, the Lender shall have the right to
redetermine the Borrowing Base at anytime that the average price per barrel of
West Texas Intermediate as stated in the Wall Street Journal (or an equivalent
quotation if the Wall Street Journal ceases to quote the price of West Texas
Intermediate) during any ninety day period is $13.00 per barrel or less. Lender
shall advise Borrower of each redetermination of the Borrowing Base by Lender by
giving notice to Borrower at least 10 days prior to the effectiveness of the
redetermined Borrowing Base. In addition, Lender may elect to have the Borrowing
<PAGE>
Base redetermined immediately prior to the disbursement of any advance. The
redetermination of the Borrowing Base will be based upon the Engineering Reports
submitted by Borrower pursuant to this Agreement. Borrower shall provide Lender
with such information as Lender may request in connection with any
redetermination of the Borrowing Base, including without limitation, information
concerning sales contracts and prices of oil and gas as of the date of the
redetermination, the quantities or volume of production since the last Borrower
Reserve Report and such other information with respect thereto as Lender may
require.
Article 3 - Security for Loan
-----------------------------
Section 3.1. Collateral
- ------------------------
The Loan and Promissory Note shall be secured by such collateral as is
provided in the Loan Documents (the "Collateral"), which shall include, without
limitation, the following:
A. Inventory and Accounts Receivable Security Agreement,
dated April 14, 1988;
B. Addendum to the Inventory and Accounts Receivable
Security Agreement, dated April 12, 1990;
C. Arbitration Addendum, dated May 1, 1992;
D. Mortgage, Deed of Trust, Security Agreement,
Assignment, Financing Statement and Fixture Filing
from Pioneer to First American Title Company of Utah,
as Trustee, and Zions Bank, dated as of January 22,
1996, and recorded and filed as follows: (1) by the
Clerk of Crook County, Wyoming, on January 29, 1996,
as Entry No. 521712, in Book 341, at Pages 232-253;
(2) by the Recorder of San Juan County, Utah, on
January 25, 1996, as Entry No. lJ01185S, in Book 749,
at Pages 275-296; and (3) in the Uniform Commercial
Code Records of the Clerk of Crook County, Wyoming,
on January 29, 1996, as Document No. 31350;
E. Letter of transmittal, dated January 24, 1996, from
Kimball, Parr, Waddoups, Brown & Gee, counsel to
Pioneer, to the Utah Department of Trust Land
Administrators, to which the Mortgage, Deed of Trust,
Security Agreement, Assignment, Financing Statement
and Fixture Filing described in subparagraph D above
is attached;
<PAGE>
F. Financing Statement, filed as follows: (1) with the
Utah Department of Commerce, Division of Corporations
and Commercial Code on January 24, 1996, as File No.
96-506301; and (2) with the Wyoming Secretary of
State's office on January 25, 1996, as Document ID
No. 9602511 1B06;
G. Mortgage, Deed of Trust, Security Agreement,
Assignment, Financing Statement and Fixture Filing
from Pioneer to First American Title Company of Utah,
as Trustee, and Zions Bank, dated April 5, 1996,
recorded and filed as follows: (1) in Mesa County,
Colorado; (2) in Rio Blanco County, Colorado on May
23, 1996, as Entry No. 257385, in Book B-524, at
Pages 1-26; (3) in Grand County, Utah, on May 10,
1996, as Entry No. 436692, in Book 487, at Pages
212-237; (4) in San Juan County, Utah, on May 13,
1996, as Entry No. 1J012755, in Book 751, at Pages
721-746; (5) in Crook County, Wyoming, on May 13,
1996, as Entry No. 523224 in Book 343, at Pages
113-138; (6) in Fremont County, Wyoming, on May 13,
1996, as Entry No. 1172008, in Book 731, at Pages
501-526; (7) in the Uniform Commercial Code Records
of Crook County, Wyoming, on May 13, 1996, as File
No. 31669; and (8) in the Uniform Commercial Code
Records of Fremont County, Wyoming, on May 14, 1996,
as File No. U 246054;
H. Letter of transmittal, dated May 13, 1996, from
Kimball, Parr, Waddoups, Brown & Gee, counsel to
Pioneer, to the Utah Department of Trust Land
Administrators, to which the Mortgage, Deed of Trust,
Security Agreement, Assignment, Financing Statement
and Fixture Filing described in subparagraph G above
is attached;
I. First. Amendment to the Mortgage, Deed of Trust,
Security Agreement, Assignment, Financing Statement
and Fixture Filing described in subparagraph D above,
recorded and filed as follows: (1) in San Juan
County, Utah, on May 13, 1996, as Entry No. 1J012754,
in Book 751, at Pages 713-720; (2) in Crook County,
Wyoming, on May 13, 1996, as Entry No. 523226, in
Book 343, at Page 139-146; and (3) in Crook County,
Wyoming, on May 13, 1996 as Entry No. 523227;
J. Financing Statement, filed as follows: (1) with the
Colorado Secretary of State's Of fice, on May 14,
1996, as File No. 962037452; (2) with the Utah
Department of Commerce, Division of Corporations and
Commercial Code, on May 1, 1996, as File No.
96-518334; and (3) with the Wyoming Secretary of
State's office, on May 1, 1996, as Document ID No.
9612211 lAO6;
<PAGE>
K. Mortgage, Deed of Trust, Security Agreement,
Assignment, Financing Statement and Fixture Filing,
which adds collateral located in Campbell County,
Wyoming, recorded and filed in Campbell County,
Wyoming;
L. First Amendment to Mortgage, Deed of Trust, Security
Agreement, Assignment, Financing Statement and
Fixture Filing, which amends the document described
in subparagraph G, above recorded and filed in Mesa
County, Colorado, as Entry Number 1818546, in Book
2371, at Page 904; and
M. Second Amendment to Mortgage, Deed of Trust, Security
Agreement, Assignment, Financing Statement and
Fixture Filing, which amends the documents described
in subparagraphs D and G above.
Section 3.2. Security for Obligations Under Loan Agreement
- -----------------------------------------------------------
All obligations of Borrower under this Loan Agreement are secured by
the Collateral.
Section 3.3. Perfection of Security Interest
- ---------------------------------------------
Borrower agrees to execute and deliver any financing statements and
other documents (properly endorsed, if necessary) reasonably requested by Lender
for perfection or enforcement of any security interest or lien, and to give good
faith, diligent cooperation to Lender, and to perform such other acts reasonably
requested by Lender for perfection and enforcement of any security interest or
lien. Lender is authorized to file, record, or otherwise utilize such documents
as it deems necessary to perfect and/or enforce any security interest or lien
granted hereunder.
Section 3.4. Release of Lender as Condition to Lien Termination
- ----------------------------------------------------------------
In recognition of Lender's right to have all its attorneys fees and
expenses incurred in connection with this Loan Agreement secured by the
Collateral, notwithstanding payment in full of the Loan and all other
obligations secured by the Collateral, Lender shall not be required to release,
reconvey, or terminate any security interest, trust deed, mortgage, assignment,
or other lien on the Collateral unless and until Borrower has executed and
delivered to Lender general releases in form and substance satisfactory to
Lender.
<PAGE>
Article 4
[INTENTIONALLY LEFT BLANK]
Article 5 - Conditions to Loan Disbursements Section 5.1. Conditions to
-----------------------------------------------------------------------
Loan Disbursements
------------------
Lender's obligation to disburse any of the Loan proceeds is expressly
subject to, and shall not arise until all of the conditions set forth below have
been satisfied. All of the documents referred to below must be in a form and
substance acceptable to Lender.
a. This Loan Agreement, the Promissory Note, the Loan
Documents, and all other documents contemplated by this Loan Agreement
to be delivered to Lender prior to funding have been fully executed
and delivered to Lender.
b. All of the documents contemplated by this Loan Agreement
which require filing or recording have been properly filed and
recorded so that all of the liens and security interests granted to
Lender in connection with the Loan will be properly created and
perfected and will have a priority acceptable to Lender.
c. All other conditions precedent provided in or contemplated
by this Loan Agreement, the Loan Documents, or any other agreement or
document have been performed.
d. As of the date of disbursement of all or any portion of
the Loan proceeds, the following shall be true and correct: (1) all
representations and warranties made by Borrower in this Loan Agreement
are true and correct as of the date of such disbursement; and (2) no
Event of Default has occurred under the Loan Agreement and no
conditions exist and no event has occurred, which, with the passage of
time or the giving of notice, or both, would constitute an Event of
Default under this Loan Agreement.
All conditions precedent set forth in this Loan Agreement, the Loan
Documents, or in any other document relating to the Loan are for the sole
benefit of Lender and may be waived unilaterally by Lender.
Section 5.2. No Default. Adverse Change, False or Misleading Statement
- -----------------------------------------------------------------------
Lender's obligation to advance any funds at any time pursuant to this
Loan Agreement and the Promissory Note shall, at Lender's sole discretion,
terminate upon the occurrence of any Event of Default or upon the occurrence of
any material adverse change in Borrower's organization or affairs or in any
<PAGE>
matter concerning which an agreement, covenant, representation, or warranty has
been made herein, or upon the determination by Lender that any of Borrower's
representations made herein or in connection with this Loan Agreement were false
or materially misleading when made. Upon the exercise of such discretion, Lender
shall be relieved of all further obligations under this Loan Agreement, the
Promissory Note, and all other agreements, documents, obligations, and
transactions contemplated by this Loan Agreement.
Article 6 -. Representations and Warranties
-------------------------------------------
Section 6.1. Organization and Qualification
- --------------------------------------------
Borrower represents and warrants that it is a corporation duly
organized and existing in good standing under the laws of the State of Utah.
Borrower represents and warrants that it is duly qualified to do business in
each jurisdiction where the conduct of its business requires qualification.
Borrower represents and warrants that it has the full power and
authority to own its property and to conduct the business in which it engages
and to enter into and perform its obligations under this Loan Agreement, the
Promissory Note, the Loan Documents, and all agreements, documents, obligations,
and transactions contemplated by this Loan Agreement.
Section 6.2. Authorization
- ---------------------------
Borrower represents and warrants that the execution, delivery, and
performance by Borrower of this Loan Agreement, the Promissory Note, the Loan
Documents and all agreements, documents, obligations, and transactions herein
contemplated have been duly authorized by all necessary corporate action on the
part of Borrower and are not inconsistent with Borrower's Articles of
Incorporation, By-Laws or any resolution of the Board of Directors of Borrower,
do not and will not contravene any provision of, or constitute a default under,
any indenture, mortgage, contract, or other instrument to which Borrower is a
party or by which it is bound, and that upon execution and delivery hereof and
thereof, this Loan Agreement, the Promissory Note and the Loan Documents will
constitute legal, valid, and binding agreements and obligations of Borrower,
enforceable in accordance with their respective terms.
Section 6.3. No Governmental Approval Necessary
- ------------------------------------------------
Borrower represents and warrants that no consent by, approval of,
giving of notice to, registration with, or taking of any other action with
respect to or by any federal, state, or local governmental authority or
organization is required for Borrower's execution, delivery, or performance of
this Loan Agreement, the Promissory Note, the Loan Documents or any other
agreements, documents, obligations, or transactions contemplated by this Loan
Agreement.
<PAGE>
Section 6.4. Accuracy of Financial Statements
- ----------------------------------------------
Borrower represents and warrants that all of its financial statements,
pro forma and actual, heretofore delivered to Lender have been prepared in
accordance with generally accepted accounting principles consistently applied
and fully and fairly represent Borrower's actual and anticipated financial
condition as of the date thereof, and fully and fairly represent the results of
Borrower's operations for the period or periods covered thereby. Borrower
represents and warrants that since the date of the most recent financial
statements delivered to Lender, there has been no material adverse change in its
financial condition.
Section 6.5. No Pending or Threatened Litigation
- -------------------------------------------------
Borrower represents and warrants that except as Lender has been
otherwise advised in writing, together with an analysis by Borrower's counsel,
there are no actions, suits, or proceedings pending or, to Borrower's knowledge,
threatened against or affecting Borrower in any court or before any governmental
commission, board, or authority which, if adversely determined, would have a
material adverse affect on Borrower's financial condition, conduct of its
business, or ability to perform its obligations under this Loan Agreement, the
Promissory Note, the Loan Documents or any other agreement, document,
obligation, or transaction contemplated by this Loan Agreement.
Section 6.6. Full and Accurate Disclosure
- ------------------------------------------
Borrower represents and warrants that this Loan Agreement, the
financial statements referred to herein, any loan application submitted to
Lender, and all other statements furnished by Borrower to Lender in connection
herewith contain no untrue statement of a material fact and omit no material
fact necessary to make the statements contained therein or herein not
misleading. Borrower represents and warrants that it has not failed to disclose
in writing to Lender any fact that materially and adversely affects, or is
reasonably likely to materially and adversely affect, Borrower's business,
operations, properties, prospects, profits, condition (financial or otherwise),
or ability to perform its obligations under this Loan Agreement, the Promissory
Note, the Loan Documents, or any other agreement, document, obligation, or
transaction contemplated by this Loan Agreement.
Section 6.7. Compliance With ERISA
- -----------------------------------
Borrower is in compliance in all material respects with all applicable
provisions of the Employee Retirement Income Security Act of 1974 ("ERISA"), as
amended, and the regulations and published interpretations thereunder. Neither a
Reportable Event as set forth in Section 4043 of ERISA or the regulations
thereunder ("Reportable Event") nor a prohibited transaction as set forth in
<PAGE>
Section 406 of ERISA or Section 4975 of the Internal Revenue Code of 1986, as
amended, has occurred and is continuing with respect to any employee benefit or
other plan established, maintained, or to which contributions have been made by
Borrower or any trade or business (whether or not incorporated) which together
with Borrower would be treated as a single employer under Section 4001 of ERISA
("ERISA Affiliate") for its employees which is covered by Title IV of ERISA
("Plan"); no notice of intent to terminate a Plan has been filed nor has any
Plan been terminated; no circumstances exist that constitute grounds under
Section 4042 of ERISA entitling the Pension Benefit Guaranty Corporation
("PBGC") to institute proceedings to terminate, or appoint a trustee to
administrate a Plan, nor has the PBGC instituted any such proceedings; neither
Borrower nor any ERISA Affiliate has completely or partially withdrawn under
Section 4201 or 4204 of ERISA from any Plan described in Section 4001(a) (3) of
ERISA which covers employees of Borrower or any ERISA Affiliate ("Multi-employer
Plan"); and Borrower and each ERISA Affiliate has met its minimum funding
requirements under ERISA with respect to all of its Plans and the present fair
market value of all Plan assets exceeds the present value of all vested benefits
under each Plan, as determined on the most recent valuation date of the Plan and
in accordance with the provisions of ERISA and the regulations thereunder for
calculating the potential liability of Borrower or any ERISA Affiliate to the
PBGC or the Plan under Title IV of ERISA; and neither Borrower nor any ERISA
Affiliate has incurred any liability to the PBGC under ERISA.
Section 6.8. Compliance With All Other Applicable Law
- ------------------------------------------------------
Borrower represents and warrants that it has complied with all
applicable statutes, rules, regulations, orders, and restrictions of any
domestic or foreign government, or any instrumentality or agency thereof having
jurisdiction over the conduct of Borrower's business or the ownership of its
properties, which may have a material impact or affect upon the conduct of
Borrower's business or the ownership of its properties.
Section 6.9. Hazardous Materials
- ---------------------------------
"Hazardous Materials" shall mean (a) "hazardous waste" as defined by
the Solid Waste Disposal Act, as amended by the Resource Conservation and
Recovery Act of 1976 (42 U.S.C. Section 6901 et seq.), including any future
amendments thereto, and regulations promulgated thereunder; (b) "hazardous
substance" as defined by the Comprehensive Environmental Response, Compensation
and Liability Act of 1980 (42 U.S.C. Section 9601 et seq.), including any future
amendments thereto, and regulations promulgated thereunder; (c) asbestos; (d)
polychlorinated biphenyls; (e) underground storage tanks, whether empty or
filled or partially filled with any substance; (f) any substance the presence of
<PAGE>
which is or becomes prohibited by any federal, state, or local law, ordinance,
rule, or regulation; and (g) any substance which under any federal, state, or
local law, ordinance, rule, or regulation requires special handling or
notification in its collection, storage, treatment or disposal.
For purposes of Hazardous Materials, "Real Property" shall mean any and
all real property or improvements thereon owned or leased by Borrower or in
which Borrower has any other interest of any nature whatsoever.
Borrower represents and warrants that, except as Lender has been
otherwise previously advised by Borrower in writing, no Hazardous Materials are
now located on, in, or under the Real Property, and neither Borrower nor, to
Borrower's knowledge, any other person has ever caused or permitted any
Hazardous Materials to be placed, held, used, stored, released, generated,
located or disposed of on, under or at the Real Property, or any part thereof.
Borrower further represents and warrants that no investigation, administrative
order, consent order and agreement, litigation or settlement with respect to
Hazardous Materials is proposed, threatened, anticipated or in existence with
respect to the Real Property.
Section 6.10. Operation of Business
- -----------------------------------
Borrower possesses all licenses, permits, franchises, patents,
copyrights, trademarks, and trade names, or rights thereto, to conduct its
business substantially as now conducted and as presently proposed to be
conducted, and Borrower is not in violation of any valid rights of others with
respect to any of the foregoing.
Section 6.11. Payment of Taxes
- ------------------------------
Borrower has filed all tax returns (federal, state, and local) required
to be filed and has paid all taxes, assessments, and governmental charges and
levies, including interest and penalties, on the Collateral and on Borrower's
property, business and income, except such as are being contested in good faith
by proper proceedings and as to which adequate reserves are maintained.
<PAGE>
Section 6.12. Gas Imbalance
- ---------------------------
None of the Collateral is subject to any "take or pay," gas balancing
or similar provision in accordance with which Hydrocarbons have been or may be
produced and delivered without Borrower then or thereafter receiving full
payment therefor and no gas imbalances presently exist. The Collateral is not
subject to any contractual or other arrangement whereby payment for production
therefrom is to be deferred for a substantial period of time after the month in
which such production is delivered (i.e., in the case of oil, not in excess of
60 days, and in the case of gas, not in excess of 90 days) . The Collateral is
not subject at present to any regulatory refund obligation and no fact exists
which might cause the same to be imposed.
Article 7 - Borrower's Covenants
---------------------------------
Borrower makes the following agreements and covenants, which shall
continue so long as this Loan Agreement is in effect and so long as Borrower is
indebted to Lender for obligations arising out of, identified in, or
contemplated by this Loan Agreement.
Section 7.1. Use of Proceeds
- -----------------------------
Borrower covenants that it will use the proceeds of the Loan solely for
the purposes identified to Lender in applying for the Loan.
Borrower covenants that it will not use any of the proceeds of the
Loan, directly or indirectly, so as to involve Borrower in a violation of
Regulation U or X of the Board of Governors of the Federal Reserve System, or
for any other purpose not permitted by Section 7 of the Securities Exchange Act
of 1934, as amended, or by any of the rules and regulations respecting the
extension of credit promulgated thereunder.
Section 7.2. Continued Compliance With ERISA
- ---------------------------------------------
Borrower covenants that, with respect to all Plans (as defined in
Section 6.7 Compliance With ERISA) which Borrower currently maintains or to
which Borrower is a party or which Borrower may hereafter adopt, Borrower shall
continue to comply with all applicable provisions of ERISA and with all
representations made in Section 6.7 Compliance With ERISA, including, without
limitation, conformance with all funding standards, prohibited transaction
rules, multi-employer plan rules, and necessary reserve requirements.
Section 7.3. Continued Compliance With Applicable Law
- ------------------------------------------------------
Borrower covenants that it shall conduct its business in a lawful
manner and in compliance with all applicable federal, state, and local laws,
ordinances, rules, regulations, and orders; that it shall maintain in good
standing all licenses and corporate or other qualifications reasonably necessary
to its business and existence; and that it shall not engage in any business not
authorized by and not in accordance with its Articles of Incorporation and
By-Laws and other governing documents.
<PAGE>
Section 7.4. Prior Consent for Amendment or Change
- ---------------------------------------------------
Borrower covenants that it shall not modify, amend, waive, or otherwise
alter Borrower's corporation structure or fail to enforce its article of
organization and operating agreement, or other governing documents without
Lender's prior written consent.
Section 7.5. Payment of Taxes and Obligations
- ----------------------------------------------
Borrower covenants that it shall pay when due all taxes, assessments,
and governmental charges and levies on the Collateral and on Borrower's
property, business, and income, and all material obligations of Borrower of
whatever nature, except such as are being contested in good faith by proper
proceedings and as to which adequate reserves are maintained.
Section 7.6. Financial Statements and Reports
- ----------------------------------------------
Borrower covenants that it shall provide Lender with such financial
statements and reports as Lender may reasonably request, and that such
statements and reports shall be prepared -in accordance with generally accepted
accounting principles and shall fully and fairly represent Borrower's financial
condition and the results of its operations for the period or periods covered.
As to all financial statements and reports which Borrower has furnished or may
in the future furnish to Lender, Borrower acknowledges and agrees that it has a
fiduciary duty to ensure that such statements and reports are accurate and
complete.
Until requested otherwise by Lender, Borrower shall provide the
following financial statements and reports to Lender:
Annual financial statements of Borrower for each fiscal year, prepared
by Borrower in a form acceptable to Lender, and reviewed by an independent
certified public accounting firm, to be delivered to Lender within one hundred
five (105) days of the end of each fiscal year. The annual financial statements
shall include a certification by the chief financial officer or chief executive
officer of Borrower that the annual financial statements have been prepared in
accordance with generally accepted accounting principles, are consistent with
prior financial statements submitted to Lender, and accurately represent the
actual financial condition of Borrower as of the date thereof, and accurately
represent the results of operations for the period covered thereby.
Quarterly financial statements of Borrower for each fiscal quarter,
prepared by Borrower in a form acceptable to Lender, to be delivered to Lender
within sixty (60) days of the end of each fiscal quarter. The quarterly
<PAGE>
financial statements shall include a certification by the chief financial
officer or chief executive officer of Borrower that the quarterly financial
statements have been prepared in accordance with generally accepted accounting
principles, are consistent with prior financial statements submitted to Lender,
and accurately represent the actual financial condition of Borrower as of the
date thereof, and accurately represent the results of operations for the period
covered thereby.
An Engineering Report and the accompanying Borrower Reserve Report
covering all oil and gas properties and Interests included in the Collateral to
be delivered to Lender within one hundred five (lOS) days after the end of each
fiscal year of Borrower. In connection with the delivery of each Engineering
Report, Borrower shall provide to Lender a certificate from the principal
financial officer of Borrower that, to the best of his knowledge and in all
material respects, (i) the information provided by Borrower for the review of
the independent engineering firm with respect to the Engineering Report is
complete, true and correct, (ii) Borrower owns good and defensible title to its
properties and Interests free of all liens and that the Lender has a first and
prior lien on the properties and Interests pursuant to the Loan Documents, (iii)
except as set forth on an exhibit to the certificate, on a net basis there are
no gas imbalances, take or pay or other prepayments with respect to the
properties or lnterests which would require Borrower to deliver Hydrocarbons
produced from the properties or Interests at some future time without then or
within thirty (30) days thereafter receiving full payment therefor, and (iv)
attached to the certificate is a list of all persons disbursing proceeds to
Borrower from the properties and Interests.
Section 7.7. Insurance
- -----------------------
Borrower shall maintain insurance with financially sound and reputable
insurance companies or associations in such amounts and covering such risks as
are usually carried by companies engaged in the same or a similar business and
similarly situated, which insurance may provide for reasonable deductibility
from coverage thereof.
Section 7.8. Inspection
- ------------------------
Borrower shall at any reasonable time and from time to time, permit
Lender or any representative of Lender to examine and make copies of and
abstracts from the records and books of account of, and visit and inspect the
properties and assets of, Borrower, and to discuss the affairs, finances, and
accounts of Borrower with any of Borrower's officers and directors and with
Borrower's independent accountants.
<PAGE>
Section 7.9. Operation of Business
- -----------------------------------
Borrower shall maintain all licenses, permits, franchises, patents,
copyrights, trademarks, and trade names, or rights thereto, to conduct its
business substantially as now conducted and as presently proposed to be
conducted, and Borrower shall not violate any valid rights of others with
respect to any of the foregoing. Borrower shall continue to engage in an
efficient and economical manner in a business of the same general type as now
conducted.
Section 7.10. Maintenance of Records and Properties
- ---------------------------------------------------
Borrower shall keep adequate records and books of account in which
complete entries will be made in accordance with generally accepted accounting
principles consistently applied, reflecting all financial transactions of
Borrower. Borrower shall maintain, keep and preserve all of its properties
(tangible and intangible) necessary or useful in the proper conduct of its
business in good working order and condition, ordinary wear and tear excepted.
Section 7.11. Notice of Claims
- ------------------------------
Borrower shall promptly notify Lender in writing of all actions, suits
or proceedings filed or threatened against or affecting Borrower in any court or
before any governmental commission, board, or authority which, if adversely
determined, -would have a material adverse effect on Borrower's financial
condition, conduct of its business, or ability to perform its obligations under
this Loan Agreement, the Promissory Note, the Loan Documents or any other
agreement, document, obligation, or transaction contemplated by this Loan
Agreement.
Section 7.12. Restriction on Debt
- ----------------------------------
Borrower shall not create, incur, assume, or suffer to exist any debt
except as permitted by this Section 7.12. Debt means (1) indebtedness or
liability for borrowed money; (2) obligations evidenced by bonds, debentures,
notes, or other similar instruments; (3) obligations for the deferred purchase
price of property or services (including trade obligations); (4) obligations as
lessee under capital leases; (5) current liabilities in respect of unfunded
vested benefits under Plans covered by ERISA; (6) obligations under letters of
credit; (7) obligations under acceptance facilities; (8) all guarantees,
endorsements (other than for collection or deposit in the ordinary course of
business), and other contingent obligations to purchase, to provide funds for
payment, to supply funds to invest in any person or entity, or otherwise to
assure a creditor against loss; and (9) obligations secured by any mortgage,
deed of trust, lien, pledge, or security interest or other charge or encumbrance
on property, whether or not the obligations have been assumed.
<PAGE>
Permitted exceptions to this covenant are: (1) debt contemplated by
this Loan Agreement; (2) debt to Lender pursuant to the Business Loan Agreement
dated April 25, 1991 between Borrower and Lender, as amended or otherwise
modified from time to time; (3) debt to Lender pursuant to the Business Loan
Agreement dated April 5, 1996 between Borrower and Lender, as amended or
otherwise modified from time to time; and (4) accounts payable to trade
creditors for goods or services which are not aged more than ninety (90) days
from the billing date and current operating liabilities (other than for borrowed
money) which are not more than ninety (90) days past due, in each case incurred
in the ordinary course of business, as presently conducted, and paid within the
specified time, unless contested in good faith and by appropriate proceedings.
7.13 Negative Pledge
- ---------------------
Without Lender's prior written consent, Borrower shall not create,
incur, assume, or suffer to exist any mortgage, deed of trust, pledge, lien,
security interest, hypothecation, assignment, deposit arrangement, or other
preferential arrangement, charge, or encumbrance (including, without limitation,
any conditional sale, other title retention agreement, or finance lease) of any
nature, upon or with respect to any of its properties or assets, now owned or
hereafter acquired, or sign or file, under the Uniform Commercial Code of any
jurisdiction, a financing statement under which Borrower appears as debtor, or
sign any security agreement authorizing any secured party thereunder to file
such financing statement, except those contemplated by this Loan Agreement and
liens for taxes and assessments not yet due and payable or, if due and payable,
those being contested in good faith by appropriate proceedings and for which
appropriate reserves are maintained.
7.14 Sale of Collateral
- ------------------------
Borrower will not, without the prior written consent of Lender, convey,
lease, sell, transfer or otherwise dispose of (or agree to do so at any future
time) all or any part of the Collateral, except, subject to any restrictions or
conditions set forth in the Loan Documents, (i) sales of inventory (including
oil and gas sold as produced) in the ordinary course of business and (ii) sales
of equipment which is uneconomic, obsolete or no longer useful in Borrower's
business and having no or ~ minimis operating, sale or fair market value, or
(iii) equipment no longer necessary for the operation of the Collateral.
7.15 Year 2000 Complaint
- -------------------------
Borrower has or will soon have (i) undertaken a detailed assessment of
all areas within its business and operations that could be adversely affected by
the failure to be "Year 2000 Compliant" (as such term is defined below), (ii)
developed and implemented a detailed plan for becoming Year 2000 Compliant on a
timely basis, and (iii) made written inquiry of each of its "Providers" (as such
term is defined below) as to whether the Providers will by Year 2000 Compliant
<PAGE>
in all material respects. Borrower reasonably anticipates that it and its
Providers will be Year 2000 Compliant on a timely basis. Borrower will promptly
advise Lender in writing upon the occurrence of any of the following: (i)
Borrower determines or is advised by its accountants, financial advisers,
consultants, or auditors or any Provider that it or any Provider will not be
Year 2000 Compliant on a timely basis or (ii) Borrower or any Provider
experiences data or data processing problems due to failure to be Year 2000
Compliant.
"Year 2000 Compliant" means, with regard to any entity, that all
material software utilized by such entity is able to function fully without
causing any error to such entity's date-sensitive data.
"Providers" means the key suppliers, vendors, and customers of Borrower
whose business failure would, with reasonable probability, result in a material
adverse change in the financial condition or prospects of Borrower.
Article 8 - Default
-------------------
Section 8.1. Events of Default
- -------------------------------
Time is of the essence of this Loan Agreement. The occurrence of any of
the following events shall constitute a default under the Promissory Note and
this Loan Agreement and shall be termed an "Event of Default":
a. Borrower fails in the payment or performance of any
obligation, covenant, agreement, or liability created by this Loan
Agreement, the Promissory Note, the Loan Documents, or any agreement,
document, obligation, or transaction contemplated by this Loan
Agreement;
b. Any representation, warranty, or financial statement made
by or on behalf of Borrower in this Loan Agreement, the Loan
Documents, or any document contemplated by this Loan Agreement is
materially false or materially misleading when made or furnished;
c. Any indebtedness of Borrower to Lender or others under any
note, indenture, agreement, or undertaking is accelerated;
d. Default or an event which with the passage of time or the
giving of notice or both would constitute a default occurs on any
indebtedness of Borrower to Lender or others under any note,
indenture, agreement, or undertaking;
e. Borrower becomes dissolved or terminated;
<PAGE>
f. A receiver, trustee, or custodian is appointed for any
part of Borrower's property, or any part of Borrower's property is
assigned for the benefit of creditors;
g. Any proceeding is commenced or petition filed under any
bankruptcy or insolvency law by or against Borrower;
h. Any judgment or regulatory fine is entered against
Borrower which may materially affect Borrower;
i. Borrower becomes insolvent or fails to pay its debts as
they mature;
j. Default occurs or Borrower fails to comply with any term
in any of the Loan Documents; or
k. Any material adverse change occurs in Borrower's
condition, or any event occurs which may cause a material adverse
change in Borrower's condition.
Section 8.2. No Waiver of Event of Default
- -------------------------------------------
No course of dealing or delay or failure to assert any Event of Default
shall constitute a waiver of that Event of Default or of any prior or subsequent
Event of Default.
Article 9 - Remedies
--------------------
Section 9.1. Remedies upon Event of Default
- --------------------------------------------
Upon the occurrence of an Event of Default, and at any time thereafter,
all or any portion of the obligations due or to become due from Borrower to
Lender, whether arising under this Loan Agreement, the Promissory Note, the Loan
Documents or otherwise, at the option of Lender and without notice to Borrower
of the exercise of such option, shall accelerate and become at once due and
payable in full, and Lender shall have all rights and remedies created by or
arising from this Loan Agreement, the Promissory Note, the Loan Documents, all
other documents contemplated by this Loan Agreement, and all other rights and
remedies existing at law, in equity, or by statute.
Additionally, Lender shall have the right, immediately and without
prior notice or demand, to set off against Borrower's obligations to Lender,
whether or not due, all money and other amounts owed by Lender in any capacity
to Borrower, including, without limitation, checking accounts, savings accounts,
and other depository accounts, and Lender shall be deemed to have exercised such
right of setoff and to have made a charge against any such money or amounts
immediately upon occurrence of an Event of Default, even though such charge is
entered on Lender's books subsequent thereto.
<PAGE>
Section 9.2. Rights and Remedies Cumulative
- --------------------------------------------
The rights and remedies herein conferred are cumulative and not
exclusive of any other rights or remedies, and shall be in addition to every
other right, power, and remedy that Lender may have, whether specifically
granted herein, or hereafter existing at law, in equity, or by statute; and any
and all such rights and remedies may be exercised from time to time and as often
and in such order as Lender may deem expedient.
Section 9.3. No Waiver of Rights
- ---------------------------------
No delay or omission in the exercise or pursuance by Lender of any
right, power, or remedy shall impair any such right, power, or remedy or shall
be construed to be a waiver thereof.
Article 10 - General Provisions
-------------------------------
Section 10.1. Governing Agreement
- ----------------------------------
In the event of conflict or inconsistency between this Loan Agreement
and the Loan Documents or other agreements, documents, obligations, or
transactions contemplated by this Agreement (excluding the Promissory Note), the
terms, provisions and intent of this Loan Agreement shall govern.
Section 10.2. Borrower's Obligations Cumulative
- ------------------------------------------------
Every obligation, covenant, condition, provision, warranty, agreement,
liability, and undertaking of Borrower contained in this Loan Agreement, the
Promissory Note, the Loan Documents, and all agreements, documents, obligations,
and transactions contemplated by this Loan Agreement shall be deemed cumulative
and not in derogation or substitution of any of the other obligations,
covenants, conditions, provisions, warranties, agreements, liabilities, or
undertakings of Borrower contained herein or therein.
Section 10.3. Payment of Expenses and Attorney's Fees
- ------------------------------------------------------
Borrower shall pay all reasonable expenses of Lender relating to the
negotiation, drafting of documents, and documentation of the Loan, including,
without limitation, title insurance, recording fees, filing fees, and reasonable
attorneys fees and legal expenses. Lender is authorized to disburse funds under
the Promissory Note for payment of these expenses.
Upon occurrence of an Event of Default, Borrower agrees to pay all
costs, and expenses, including reasonable attorney fees and legal expenses,
incurred by Lender in enforcing, or exercising any remedies under, this Loan
Agreement, the Promissory Note, or the Loan Documents, or any other rights and
remedies. Payment of all such expenses shall be secured by the Loan Documents
and Collateral.
<PAGE>
Borrower agrees to pay all expenses, including reasonable attorney
fees and legal expenses, incurred by Lender in any bankruptcy proceedings of any
type involving Borrower, this Loan Agreement, the Loan Documents, or the
Collateral, including, without limitation, expenses incurred in modifying or
lifting the automatic stay, determining adequate protection, use of cash
collateral or relating to any plan of reorganization.
Section 10.4. Right to Perform for Borrower
- --------------------------------------------
Lender may, in its sole discretion and without any duty to do so, elect
to discharge taxes, tax liens, security interests, or any other encumbrance upon
the Collateral or any other property or asset of Borrower, to pay any filing,
recording, or other charges payable by Borrower, or to perform any other
obligation of Borrower under this Loan Agreement or under the Loan Documents.
All such payments and expenses incurred by Lender shall be reimbursed by
Borrower upon demand, together with interest at the rate provided in the
Promissory Note from the date of disbursement until reimbursed, both before and
after judgment, and shall be secured by the Loan Documents and Collateral -
Section 10.5. Assignability
- ----------------------------
Borrower may not assign or transfer this Loan Agreement, the Promissory
Note, the Loan Documents or any agreement, document, - obligation, or
transaction contemplated by this Loan Agreement, and any such purported
assignment or transfer is void.
Lender may assign or transfer this Loan Agreement, the Promissory Note,
the Loan Documents, and any agreement, document, obligation, or transaction
contemplated by this Loan Agreement.
Section 10.6. Third Party Beneficiaries
- ----------------------------------------
The Loan, this Loan Agreement, the Promissory Note, the Loan Documents,
and all other agreements, documents, obligations, and transactions contemplated
by this Loan Agreement are made for the sole and exclusive benefit of Borrower
and Lender and are not intended to benefit .any other third party. No third
party may claim any right or benefit or seek to enforce any term or provision of
this Loan Agreement, the Loan, the Promissory Note, the Loan Documents, or any
other agreement, document, obligation, or transaction contemplated by this Loan
Agreement.
Section 10.7. Governing Law
- ----------------------------
This Loan Agreement, the Promissory Note, the Loan Documents, and all
agreements, documents, obligations, and transactions contemplated by this Loan
Agreement shall be governed by and construed in accordance with the laws of the
State of Utah, except to the extent that any such document expressly provides
otherwise.
<PAGE>
Section 10.8. Severability of Invalid Provisions
- -------------------------------------------------
With respect to this Loan Agreement, the Promissory Note, the Loan
Documents, and all agreements, documents, obligations, and transactions
contemplated by this Loan Agreement, any provision hereof or thereof which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction
only, be ineffective only to the extent of such prohibition or unenforceability
without invalidating the remaining provisions hereof or thereof, and any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
Section 10.9. Interpretation of Loan Agreement
- -----------------------------------------------
The article and section headings in this Loan Agreement are inserted
for convenience only and shall not be considered part of the Loan Agreement nor
be used in its interpretation.
All references in this Loan Agreement to the singular shall be deemed
to include the plural when the context so requires, and vice versa. References
in the collective or conjunctive shall also include the disjunctive unless the
context otherwise clearly requires a different interpretation.
Section 10.10. Survival and Binding Effect of Representations, Warranties, and
- --------------------------------------------------------------------------------
Covenants
- ---------
All agreements, representations, warranties, and covenants made herein
by Borrower shall survive the execution and delivery of this Loan Agreement and
shall continue in effect so long as any obligation to Lender contemplated by
this Loan Agreement is outstanding and unpaid, notwithstanding any termination
of this Loan Agreement. All agreements, representations, warranties, and
covenants made herein by Borrower shall survive any bankruptcy proceedings
involving Borrower. All agreements, representations, warranties, and covenants
in this Loan Agreement shall bind the -party making the same, and its successors
and, in Lender's case, assigns, and all rights and remedies in this Loan
Agreement shall inure to the benefit of and be enforceable by each party for
whom made, and their respective successors and, in Lender's case, assigns.
Section 10.11. Indemnification
- ------------------------------
Borrower agrees to indemnify Lender for any and all claims and
liabilities, and for damages which may be awarded or incurred by Lender, and for
all reasonable attorney fees, legal expenses, and other out-of-pocket expenses
incurred in defending such claims, arising from or related in any manner to the
negotiation, execution, or performance by Lender of this Loan Agreement, the
Promissory Note, the Loan Documents, or any of the agreements, documents,
obligations, or transactions contemplated by this Loan Agreement, including,
without limitation, any claims, liability, or causes of actions related to any
Hazardous Material located on, in, or under the Real Property, but excluding any
such claims based upon breach or default by Lender or negligence or misconduct
of Lender.
<PAGE>
Lender shall have the sole and complete control of the defense of any
such claims. Lender is hereby authorized to settle or otherwise compromise any
such claims as Lender in good faith determines shall be in its best interests.
Any indemnification amount owing to Lender pursuant to this Section
10.11 shall be secured by the Loan Documents and Collateral except that,
notwithstanding anything to the contrary in this Loan Agreement or the Loan
Documents, any such indemnification amount owing to Lender shall not be secured
in any way by any Real Property on, in or under which any Hazardous Material is
located.
Section 10.12. Limitation of Conseguential Damages
- --------------------------------------------------
Lender and its officers, directors, employees, representatives, agents,
and attorneys, shall not be liable to Borrower for consequential damages arising
from or relating to any breach of contract, tort, or other wrong in connection
with the negotiation, documentation, administration or collection of the Loan.
Section 10.13. Revival Clause
- -----------------------------
If the incurring of any debt by Borrower or the payment of any money or
transfer of property to Lender by or on behalf of Borrower should for any reason
subsequently be determined to be "voidable" or "avoidable" in whole or in part
within the meaning of any state or federal law (collectively "voidable
trsnsfers"), including, without limitation, fraudulent conveyances or
preferential transfers under the United States Bankruptcy Code or any other
federal or state law, and Lender is required to repay or restore any voidable
transfers or the amount or any portion thereof, or upon the advi.ce of Lender's
counsel is advised to do so, then, as to any such amount or property repaid or
restored, including all reasonable costs, expenses, and attorneys fees of Lender
related thereto, the liability of Borrower shall automatically be revived,
reinstated and restored and shall exist as though the voidable transfers had
never been made.
Section 10.14. Duplicate Originals
- -----------------------------------
Two or more duplicate originals of this Loan Agreement may be signed by
the parties, each duplicate of which shall be an original but all of which
together shall constitute one and the same instrument.
Section 10.15. Counterpart Execution
- -------------------------------------
This Loan Agreement may be executed in several counterparts, without
the requirement that all parties sign each counterpart.
<PAGE>
Each of such counterparts shall be an original, but all counterparts together
shall constitute one and the same instrument.
Section 10.16. Arbitration
- --------------------------
ARBITRATION DISCLOSURES:
10.16.1 ARBITRATION IS FINAL AND BINDING ON THE PARTIES AND SUBJECT TO
ONLY VERY LIMITED REVIEW BY A COURT.
10.16.2 IN ARBITRATION THE PARTIES ARE WAIVING THEIR RIGHT TO LITIGATE
IN COURT, INCLUDING THEIR RIGHT TO A J1JRY TRIAL.
10.16.3 DISCOVERY IN ARBITRATION IS MORE LIMITED THAN DISCOVERY IN
COURT.
10.16.4 ARBITRATORS ARE NOT REQUIRED TO INCLUDE FACTUAL FINDINGS OR
LEGAL REASONING IN THEIR AWARDS. THE RIGHT TO APPEAL OR SEEK MODIFICATION OF
ARBITRATORS' RULINGS IS VERY LIMITED.
10.16.5 A PANEL OF ARBITRATORS MIGHT INCLUDE AN ARBITRATOR WHO IS OR
WAS AFFILIATED WITH THE BANKING INDUSTRY.
10.16.6 IF YOU HAVE QUESTIONS ABOUT ARBITRATION, CONSULT YOUR ATTORNEY
OR THE AMERICAN ARBITRATION ASSOCIATION.
ARBITRATION AGREEMENT
10.16.7 Any claim or controversy ("Dispute") between or among the
parties to this Loan Agreement, including but not limited to Disputes arising
out of or relating to the Loans, this Loan Agreement, the Promissory Notes, the
Loan Documents or any agreement, document, obligation or transaction
contemplated by this Loan Agreement, this Section 10.16 Arbitration
("Arbitration Agreement"), or any related agreements or instruments relating
hereto or delivered in connection herewith ("Related Documents"), and including
but not limited to a Dispute based on or arising from an alleged tort, shall at
the request of any party to this Loan Agreement be resolved by binding
arbitration in accordance with the applicable arbitration rules of the American
Arbitration Association ("the Administrator"). The provisions of this
Arbitration Agreement shall survive any termination, amendment, or expiration of
this Loan Agreement or Related Documents.
10.16.8 The arbitration proceedings shall be conducted in Salt Lake
City, Utah, at a place to be determined by the Administrator. The Administrator
and the arbitrator(s) shall have the authority to the extent practicable to take
any action to require the arbitration proceeding to be completed and the
arbitrator(s)' award issued within one-hundred-fifty (150) days of the filing of
the Dispute with the Administrator. The arbitrator(s) shall have the authority
to impose sanctions on any party that fails to comply with time periods imposed
by the Administrator or the arbitrator(s), including the sanction of summarily
dismissing any Dispute or defense with prejudice. The arbitrator(s) shall have
<PAGE>
the authority to resolve any Dispute regarding the terms of this Loan Agreement,
this Arbitration Agreement or Related Documents, including any claim or
controversy regarding the arbitrability of any Dispute. All limitations periods
applicable to any Dispute or defense, whether by statute or agreement, shall
apply to any arbitration proceeding hereunder and the arbitrator(s) shall have
the authority to decide whether any Dispute or defense is barred by a
limitations period and, if so, to summarily dismiss any Dispute or defense on
that basis. The doctrines of compulsory counterclaim, res judicata, and
collateral estoppel shall apply to any arbitration proceeding hereunder so that
a party must state as a counterclaim in the arbitration proceeding any claim or
controversy which arises out of the transaction or occurrence that is the
subject matter of the Dispute. The arbitrator(s) may in the arbitrator(s)'
discretion and at the request of any party: (1) consolidate in a single
arbitration proceeding any other claim or controversy involving another party
that is substantially related to the Dispute where that other party is bound by
an arbitration clause with the Lender, such as borrowers, guarantors, sureties,
and owners of collateral; (2) consolidate in a single arbitration proceeding any
other claim or controversy that is substantially similar to the Dispute; and (3)
administer multiple arbitration claims or controversies as class - actions in
accordance with the provisions of Rule 23 of the Federal Rules of Civil
Procedure.
10.16.9 The arbitrator(s) shall be selected in accordance with the
rules of the Administrator from panels maintained by the Administrator. A single
arbitrator shall be knowledgeable in the subject matter of the Dispute. Where
three arbitrators conduct an arbitration proceeding, the Dispute shall be
decided by a majority vote of the three arbitrators, at least one of whom must
be knowledgeable in the subject matter of the Dispute and at least one of whom
must be a practicing attorney. The arbitrator(s) shall award recovery of all
costs and fees (including attorneys' fees and costs, arbitration administration
fees and costs, and. arbitrator(s)' fees) . The arbitrator(s), either during the
pendency of the arbitration proceeding or as part of the arbitration award, also
may grant provisional or ancillary remedies including but not limited to
injunctive relief, foreclosure, sequestration, attachment, replevin,
garnishment, or the appointment of a receiver.
10.16.10 Judgment upon an arbitration award may be entered in any court
having jurisdiction, subject to the following limitation: the arbitration award
is binding upon the parties only if the amount does not exceed four million
dollars ($4,000,000.00); if the award exceeds that limit, either party may
demand the right to a court trial. Such a demand must be filed with the
Administrator within thirty (30) days following the date of the arbitration
award; if such a demand is not made within that time period, the amount of the
<PAGE>
arbitration award shall be binding. The computation of the total amount of an
arbitration award shall include amounts awarded for attorneys' fees and costs,
arbitration administration fees and costs, and arbitrator(s)' fees.
10.16.11 No provision of this Arbitration Agreement, nor the exercise
of any rights hereunder, shall limit the right of any party to: (1) judicially
or non-judicially foreclose against any real or personal property collateral or
other security; (2) exercise self-help remedies, including but not limited to
repossession and setoff rights; or (3) obtain from a court having jurisdiction
thereover any provisional or ancillary remedies including but not limited to
injunctive relief, foreclosure, sequestration, attachment, replevin,
garnishment, or the appointment of a receiver. Such rights can be exercised at
any time, before initiation of or during an arbitration proceeding, except to
the extent such action is contrary to the arbitration award. The exercise of
such rights shall not constitute a waiver of the right to submit any Dispute to
arbitration, and any claim or controversy related to the exercise of such rights
shall be a Dispute to be resolved under the provisions of this Arbitration
Agreement.
10.16.12 Notwithstanding the applicability of any other law to the Loan
Agreement, the Arbitration Agreement, or Related Documents between or among the
parties, the Federal -Arbitration Act, 9 U.S.C. ss. 1 ~ ~q., shall apply to the
construction and interpretation of this Arbitration Agreement.
Section 10.17. Notices
- ----------------------
All notices or demands by any party to this Loan Agreement shall,
except as otherwise provided herein, be in writing and may be sent by certified
mail, return receipt requested. Notices so mailed shall be deemed received when
deposited in a United States post office box, postage prepaid, properly
addressed to Borrower or Lender at the mailing addresses stated herein or to
such other addresses as Borrower or Lender may from time to time specify in
writing. Any notice so addressed and otherwise delivered shall be deemed to be
given when actually received by the addressee.
Mailing addresses:
Lender:
Zions First National Bank
Commercial Loan Department
P.O. Box 25822
One South Main Street
Salt Lake City, Utah 84125
Attention: Brett L. Eliason
With a copy to:
<PAGE>
Callister Nebeker & McCullough
Gateway Tower East Suite 900
10 East South Temple
Salt Lake City, Utah 84133
Attention: Glen F. Strong, Esq.
Borrower:
Pioneer Oil and Gas
1225 Ft. Union Boulevard, Suite 100
Midvale, Utah 84047
Attention: ________________________
Section 10.18. Integrated Agreement and Subseguent Amendment
- ------------------------------------------------------------
This Loan Agreement, the Promissory Note, the Loan Documents, and the
other agreements, documents, obligations, and transactions contemplated by this
Loan Agreement constitute the entire agreement between Lender and Borrower, and
may not be altered or amended except by written agreement signed by Lender and
Borrower. PURSUANT TO UTAH CODE SECTION 25-5-4, BORROWER IS NOTIFIED THAT THESE
AGREEMENTS ARE A FINAL EXPRESSION OF THE AGREEMENTS BETWEEN LENDER AND BORROWER
AND THESE AGREEMENTS MAY NOT BE CONTRADICTED BY EVIDENCE OF ANY ALLEGED ORAL
AGREEMENT.
All prior and contemporaneous agreements, arrangements and
understandings between the parties hereto as to the .subject matter hereof are,
except as otherwise expressly provided herein, rescinded.
Closing Date: January ------ , 1999.
Lender:
ZIONS FIRST NATIONAL BANK,
a national banking association
By: signed
Brett L. Eliason
Vice President
<PAGE>
Borrower:
PIONEER OIL AND GAS,
a Utah corporation
By: signed by Don J. Colton
Title:President
<PAGE>
EXHIBIT A
PROMISSORY NOTE
<PAGE>
PROMISSORY NOTE
January 8, 1999
Borrower: Pioneer Oil and Gas
Lender: Zions First National Bank
Amount: $400,000.00
Maturity: December 31, 1999
For value received, Borrower promises to pay to the order of Lender at
its Commercial Loan Department in Salt Lake City, Utah, the sum of four hundred
thousand dollars ($400,000.00) or such other principal balance as may be
outstanding hereunder in lawful money of the United States with interest thereon
at a variable rate computed on the basis of a three hundred sixty (360) day year
as follows: one and five-tenths percent (1.5%) per annum above the Prime Rate
(hereinafter defined) of Lender from time to time in effect, adjusted as of the
date of any change in the Prime Rate. Upon default in payment of any principal
or interest when due, whether due at stated maturity, by acceleration, or
otherwise, all outstanding principal shall bear interest at a default rate from
the date when due until paid, both before and after judgment, which default rate
shall be three percent (3%) per annum above the foregoing variable rate, which
is a default rate of four and five-tenths percent (4.5%) per annum above the
Prime Rate.
Interest shall accrue from the date of disbursement of the principal
amount or portion thereof until paid, both before and after judgment, in
accordance with the terms set forth herein.
Principal and interest shall be payable as follows: Interest accrued is
to be paid monthly commencing February 1, 1999, and on the same day of each
month thereafter. All principal and unpaid interest shall be paid in full on
December 31, 1999.
All payments shall be applied first to accrued interest and the
remainder, if any, to principal.
Prime Rate means an index which is determined daily by the published
commercial loan variable rate index held by any two of the following banks:
Chase Manhattan Bank, Wells Fargo Bank N. A., and Bank of America N. T. & S. A.
In the event no two of the above banks have the same published rate, the bank
having the median rate will establish Lender's Prime Rate. If, for any reason
beyond the control of Lender, any of the aforementioned banks becomes
unacceptable as a reference for the purpose of determining the Prime Rate used
herein, Lender may, five days after posting notice in the Lender's bank offices,
substitute another comparable bank for the one determined unacceptable. As used
in this paragraph, "comparable bank" shall mean one of the ten largest
<PAGE>
commercial banks headquartered in the United States of America. This definition
of Prime Rate is to be strictly interpreted and is not intended to serve any
purpose other than providing an index to determine the variable interest rate
used herein. It is not the lowest rate at which Lender may make loans to any of
its customers, either now or in the future.
This Promissory Note shall be a revolving line of credit under which
Borrowers may repeatedly draw and repay funds, so long as no default has
occurred hereunder or under the Loan Agreement dated January --, 1999, between
Lender and Borrower (the "Loan Agreement") and so long as the aggregate,
outstanding principal balance at any time does not exceed the principal amount
of this Promissory Note. Disbursements under this Promissory Note shall be made
in accordance with the Loan Agreement.
If, at any time prior to the maturity of this Promissory Note, this
Promissory Note shall have a zero balance owing, this Promissory Note shall not
be deemed satisfied or terminated but shall remain in full force and effect for
future draws unless terminated upon other grounds.
This Promissory Note is made in accordance with the Loan Agreement and
is secured by the collateral identified in and contemplated by the Loan
Agreement.
If default occurs in the payment of any principal or interest when due,
or if any Event of Default (as defined in the Loan Agreement) occurs under the
Loan Agreement, time being the essence hereof, then the entire unpaid balance,
with interest as aforesaid, shall, at the election of the holder hereof and
without notice of such election, become immediately due and payable in full.
If this Promissory Note becomes in default or payment is accelerated,
Borrower agrees to pay to the holder hereof all collection costs, including
reasonable attorney fees and legal expenses, in addition to all other sums due
hereunder.
All obligations of Borrower under this Promissory Note shall be joint
and several.
Borrower and all endorsers, sureties and guarantors hereof hereby
jointly and severally waive presentment for payment, demand, protest, notice of
protest, notice of protest and of non-payment and of dishonor, and consent to
<PAGE>
extensions of time, renewal, waivers or modifications without notice and further
consent to the release of any collateral or any part thereof with or without
substitution.
Borrower:
Pioneer Oil and Gas
By:signed by Don J. Colton
Title: President
February 25, 2000
Mr. Don Colton
Pioneer Oil and Gas
1206 W. South Jordan Parkway, Unit B
South Jordan, UT 84095-4551
RE: Pioneer Oil and Gas
1999 Reserve Report
Dear Mr. Colton:
The 1999 Annual Reserve Report for Pioneer Oil and Gas (POG) was previously
provided to your office by Fall Line Energy Incorporated and covers the
financial year ending September 30, 1999. The report was signed and mailed to
POG on November 5, 1999. The report was prepared for inclusion in standard
company filings and accurately reflects the value to POG as of September 30,
1999. This report was prepared using Security and Exchange Commission (SEC) and
the Society of Petroleum Evaluation Engineers (SPEE) guidelines. The only
reserves class evaluated was Proved Developed Producing.
The 1999 Annual Reserve Report was prepared by Scott H. Stinson, P.E. Mr.
Stinson is a registered Professional Engineer in the States of Wyoming and
Colorado. Mr. Stinson's registration number in Wyoming is #5290, his
registration number in Colorado is #28624.
Neither Fall Line Energy, nor Scott H. Stinson, has any interest in the subject
properties and neither the employment to make the study nor the compensation was
contingent on the estimates of reserves and the future income from the subject
properties.
If you have any questions or require any additional information, please do not
hesitate to call.
Sincerely,
Fall Line Energy, Inc.
Scott H. Stinson, P.E.
President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
PIONEER OIL AND GAS FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> SEP-30-1999
<CASH> 227,376
<SECURITIES> 0
<RECEIVABLES> 102,976
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 415,219
<PP&E> 1,717,106
<DEPRECIATION> 1,154,720
<TOTAL-ASSETS> 980,835
<CURRENT-LIABILITIES> 122,463
<BONDS> 0
0
0
<COMMON> 8,134
<OTHER-SE> 850,238
<TOTAL-LIABILITY-AND-EQUITY> 980,835
<SALES> 216,365
<TOTAL-REVENUES> 219,504
<CGS> 95,431
<TOTAL-COSTS> 285,657
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5
<INCOME-PRETAX> (66,158)
<INCOME-TAX> 0
<INCOME-CONTINUING> (66,158)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (66,158)
<EPS-BASIC> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
MINUTES OF THE BOARD OF DIRECTORS OF
PIONEER OIL AND GAS
ON OCTOBER 22, 1999
Minutes of the Board of Directors Meeting of Pioneer Oil and Gas held
on October 22, 1999, at 1225 Fort Union Blvd., Suite 100, Midvale, Utah 84047 at
10:00 A.M. Don J. Colton, Chairman of the Board called the meeting to order. The
Board discussed the recent acquisition of oil and gas leases by Pioneer Oil and
Gas with employees of the Company and ratified the action and agreed that in the
future the full-time employees of the Company can purchase with the Company 25%
of the oil and gas leases acquired with the Company for the reasons stated in
the Resolution attached hereto entered into in 1987 for production purchases. If
the Company is unable to raise the necessary funds to pay its share of any oil
and gas leases the employees of the Company can purchase more of the oil and gas
leases than 25% to allow the Company to close on the oil and gas leases.
The Board unanimously agreed that the oil and gas leases should be
handled in the same manner as the production purchases requiring the employees
to pay their pro rata portion of the costs at the same time Pioneer Oil and Gas
pays for the leases. The reasons for allowing the purchases by the employees are
the same for the production purchases and the Board believes the program for
production purchases has been successful since the employees have been even more
careful with their own funds at risk.
There being no further business to come before the meeting, the same
was upon motion, duly adjourned.
IN WITNESS WHEREOF, these Minutes of the Board of Directors Meeting
are executed this 22nd day of October, 1999.
MEMBERS OF THE BOARD OF
DIRECTORS OF PIONEER OIL AND GAS
Signed by Don J. Colton
Signed by Gregg B. Colton
Signed by John O. Anderson
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RESOLUTION OF THE BOARD OF DIRECTORS
OF PIONEER OIL AND GAS
Pioneer Oil and Gas ("Pioneer) is presently purchasing several oil and
gas producing properties and is limited by the amount of properties it can
purchase / due to its cash flow. Therefore, it is recommended that Pioneer allow
its Directors and employees to purchase on the same basis as Pioneer up to
twenty-- five percent (25%) If they desire, of any production purchase of
Pioneer if the Directors and employees pay their pro-rata share of the cash
purchase price at the time Pioneer pays its pro rata share of the production
price. If Pioneer is unable to raise the necessary funds to pay its share of any
production purchase the Directors and employees of Pioneer can purchase more of
the production than 25% to allow Pioneer to close on the production deal.
by allowing the Directors and employees to participate in the
production purchases the following four objectives will be attained:
1. Pioneer shall reduce its risk in any one property by not purchasing
100% of the oil and gas property being purchased.
2. Directors and employees shall have an even greater incentive to
carefully evaluate all production purchases before they are
consummated.
3. Pioneer can purchase and bid on more oil and gas properties because
It will be sharing in the purchase price.
4. Pioneer will not lose its down payment money on a particular
property if the Directors and employees can raise the additional funds
to pay the total purchase price if Pioneer is unable to do so.
If the foregoing resolution for allowing Directors and employees of
Pioneer to share in the purchase of oil and gas properties, meets with your
approval, please indicate by signing below.
Signed on April 3, 1987 by Don J. Colton
Signed on April 28, 1987 by Howard R. Pratt
Signed on April 3, 1987 by Gregg B. Colton
Signed on April 10, 1987 by John F. Schatz
Signed on May 8, 1987 by Larry G. Colton
