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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to ________________
COMMISSION FILE NUMBER 0-8609
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FUTURE PETROLEUM CORPORATION
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(Exact name of small business issuer as specified in charter)
UTAH 87-0239185
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
700 LOUISIANA, SUITE 3700
HOUSTON, TEXAS 77002
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(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code (713) 236-9792
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Securities registered pursuant to section 12(b) of the Act:
Title of Class Name of each exchange on which registered
None None
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Securities registered pursuant to section 12(g) of the Act:
COMMON STOCK, PAR VALUE $0.01
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(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [ ] No
[X]
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-KB is not contained herein, and will not be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
Registrant's revenues for the most recent fiscal year: $3,679,000
The aggregate market value of the Company's voting stock held by nonaffiliates
computed at the closing bid price in the over-the-counter market as quoted on
the National Association of Securities Dealers Electronic Bulletin Board system
on March 31, 1999, was approximately $1,746,702.
As of March 31, 1999, the Company had outstanding 22,357,786 shares of its
common stock, par value $0.01 and 100,000 shares of preferred stock, par value
$.01.
DOCUMENTS INCORPORATED BY REFERENCE
Transitional Small Business Disclosure Format Yes [X] No [ ]
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PREFACE
Caution Respecting Forward-Looking Information
This report includes "forward-looking statements" within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended. All
statements other than statements of historical fact included in this report
regarding the Company's financial position, estimated quantities and net
present values of reserves, business strategy, plans and objectives for future
operations and covenant compliance, are forward-looking statements. Although
the Company believes that the assumptions upon which such forward-looking
statements are based are reasonable, it can give no assurances that such
assumptions will prove to have been correct. Important factors that could cause
actual results to differ materially from the Company's expectations
("Cautionary Statements") are disclosed below under "Risk Factors" and
elsewhere in this report. All subsequent written and oral forward-looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified by the Cautionary Statements.
CERTAIN DEFINITIONS
All defined terms under rule 4-10(a) of Regulation S-X promulgated by
the Securities and Exchange Commission ("Commission") shall have their
statutorily prescribed meanings when used in this report. In addition, the
following terms have the meaning set forth below when used herein.
"API" means American Petroleum Institute.
"Bpd" means barrels of oil per day.
"Bbl" means barrel of oil.
"Bcf" means billion cubic feet of natural gas.
"DEVELOPMENT WELL" means a well drilled within the proved area of an oil or gas
reservoir to the depth of a stratigraphic horizon know to be productive.
"EXPLORATORY WELL" means a well drilled to find and produce oil or gas in an
unproved area, to find a new reservoir in a field previously found to be
productive of oil or gas in another reservoir, or to extend a known reservoir.
"MBbl" means thousand barrels of oil.
"MMBbl" means million barrels of oil.
"MMBO" means million barrels of oil.
"MMBTU" means million British thermal units.
"MCFG" means thousand cubic feet of natural gas.
"MMMCFG" means billions cubic feet of natural gas.
"COPAS" Council of Petroleum Accountants Societies.
"PROVED RESERVES" means the estimated quantities of crude oil, natural gas and
natural gas liquids which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions, i.e. prices and costs as of
the date the estimate is made. "Proved reserves" may be developed or
undeveloped.
"PV-10 VALUE" means the estimated future net revenue to be generated from the
production of proved reserves discounted to present value using an annual
discount rate of 10%. These amounts are calculated net of estimated production
costs and future development costs, using prices and costs in effect as of a
certain date, without escalation and without giving effect to non-property
related expenses such as general and administrative expenses, debt service,
future income tax expense or depreciation, depletion and amortization.
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TABLE OF CONTENTS
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<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION PAGE
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<S> <C>
PART I
1. Business........................................................................................................ 4
2. Properties...................................................................................................... 16
3. Legal Proceedings............................................................................................... 19
4. Submission of Matters to Vote of Security Holders............................................................... 19
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters........................................... 20
6. Management's Discussion and Analysis of Financial Condition and Results of Operations........................... 21
7. Financial Statements and Supplementary Data..................................................................... 24
8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............................ 25
PART III
9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the
Exchange Act.................................................................................................... 25
10. Executive Compensation.......................................................................................... 28
11. Security Ownership of Certain Beneficial Owners and Management.................................................. 32
12. Certain Relationships and Related Transactions.................................................................. 34
13. Exhibits and Reports on Form 8-K................................................................................ 36
</TABLE>
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PART I
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ITEM 1. BUSINESS
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THE COMPANY
Future Petroleum Corporation (the "Company" or "Future") is engaged
through its subsidiaries and subsidiary partnerships in the development of oil
and natural gas properties located onshore primarily in the Gulf Coast Region
(Texas and Louisiana) and California. The Company's principal business
strategies include (i) maximizing the value of its existing high-quality,
long-life reserves through efficient operating and marketing practices, (ii)
conducting detailed field studies using the newest technology to identify
additional reserves and exploration potential, and (iii) seeking acquisitions
of producing properties, with exploration and development potential in areas
where the Company has operating experience and expertise. In 1998, through a
change in management and the establishment of a credit facility with Bank of
America, the Company was able to implement an aggressive acquisition program.
Going forward, the Company intends to continue to actively acquire producing
oil and gas reserves along with the exploitation of its existing properties.
As of December 31, 1998, the Company owned approximately 15,145,000
barrels of oil equivalent proved reserves. Approximately 54% of the Company's
reserves are proved developed producing reserves. Quantities stated as
equivalent barrels of oil reserves are based on a factor of six mcf of natural
gas per barrel of oil. See "Item 2. Properties - Reserves."
STRATEGIC DEVELOPMENTS
On August 14, 1998, the Company acquired from Bargo Energy Resources,
Ltd. ("Resources") their interest in the South Coles Levee Unit for a purchase
price of $5.8 million, 4.7 million shares of Common Stock and a warrant to
purchase an additional 250,000 shares of Common Stock ("August Transaction").
In connection with this transaction, EnCap Equity 1994, L.P, a Texas limited
partnership ("EnCap") and Energy Capital Investment Company PLC, an English
investment company ("ECIC") (together are the "EnCap Entities") agreed to
modify and extend their outstanding loans to the Company in the amount of
approximately $7.3 million in exchange for 2.8 million shares of Common Stock.
Also in connection with the August Transaction, Resources, the EnCap
Entities, Mr. B. Carl Price, Mr. Don Wm. Reynolds (Mr. Price and Mr. Reynolds
together are the "Price Group") and Future entered into a Stockholders'
Agreement whereby all parties agreed to cause the Board of Directors of Future
to be composed of seven persons. Each party further agreed to vote their shares
of Common Stock in connection with the election of directors of the Company for
two nominees of Resources, two nominees of the EnCap Entities, and three
nominees of the Price Group. In addition, the parties to the Stockholders'
Agreement agreed that one of Resources nominees would be the Chairman of the
Board of Directors of the Company. Accordingly, Mr. Robert D. Price and Mr. D.
William Reynolds, Jr. agreed to resign from Future's Board of Directors. Mr.
Tim J. Goff, who was also appointed Chairman of the Board of Future, and Mr.
Thomas D. Barrow were appointed to serve as Resources nominees, and Mr. Gary R.
Petersen and Mr. D. Martin Phillips were appointed to serve as the EnCap
Entities' nominees.
In connection with the August Transaction, Future entered into a $20
million credit agreement with Bank of America National Trust and Savings
Association ("Bank of America") with a borrowing base initially set at $10.5
million. Pursuant to pledge agreements dated August
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14, 1998 ("August Pledge Agreements"), Resources, the EnCap Entities and the
Price Group pledged their shares of Common Stock to secure Future's borrowings
under the credit agreement.
In December 1998, the Company amended and restated its credit
agreement with Bank of America to increase the commitment amount to $50 million
subject to a borrowing base as determined by Bank of America on an acquisition
by acquisition basis.
As of December 15, 1998, the Company acquired substantially all of the
assets and liabilities of Resources, including Resources' trained staff of
professional geologists, engineers, landmen, accountants and other employees,
for $2 million cash and 100,000 shares of Preferred Stock ("December
Transaction"). In addition, the Company issued an aggregate of 8,333,333 shares
of Common Stock to Bargo Energy Company, a Texas general partnership ("Bargo
Energy") and TJG Investments, Inc. ("TJG") in exchange for the cancellation of
outstanding debt aggregating $4 million. In connection with this transaction,
the Company, Resources, Bargo, TJG, the Price Group and the EnCap Entities
entered into an Amended and Restated Stockholders' Agreement whereby Resource's
board representation was increased from two director nominees to four director
nominees and the Price Group's board representation was decreased from three
director nominees to one director nominee.
All of the shares of Common Stock and Preferred Stock issued pursuant
to the December Transaction as well as the shares of Common Stock issuable upon
conversion of the Preferred Stock are subject to pledge agreements, each of
which is dated December 15, 1998 ("December Pledge Agreements") between the
stockholders and Bank of America. The December Pledge Agreements secure
Future's borrowings under its credit agreement with Bank of America. If an
event of default occurs under the credit agreement, the bank will have the
right to vote all of the shares of Future subject to the December Pledge
Agreements and, following foreclosure on the shares, will have the right to
sell the shares as provided in the December Pledge Agreements and applicable
law.
Also in connection with the December transaction, the Company agreed
to file an information statement with the Commission to change its name to
Bargo Energy Company from Future Petroleum Corporation, reincorporate the
Company in Texas and increase the number of shares of Common Stock Future is
authorized to issue
In December 1998, the Company entered into a term sheet with entities
affiliated with the EnCap Entities and other institutional investors not
affiliated with the EnCap Entities or the Company pursuant to which the
investors would purchase $50 million of a new class of cumulative redeemable
preferred stock of the Company, and would receive warrants or an amount of
shares of Common Stock representing 40% of the outstanding Common Stock on a
fully diluted basis (the "Pending Transaction"). The term sheet is a
non-binding expression of interest, and is not a commitment on the part of the
investors or the Company. Among other things, the investment pursuant to the
term sheet is subject to completion of due diligence by the investors and
satisfactory documentation. The parties have not completed due diligence and
consummation of the transaction is subject to material contingencies beyond the
control of the Company. Final terms of any transaction will be subject to the
approval of a majority of the directors of the Company who are not affiliated
with any of the investors. As a result, no assurances can be made as to the
terms of the Pending Transaction or that the investors will purchase preferred
stock or any other security of the Company.
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DEVELOPMENT PROPERTIES
Oil and Gas Holdings. The Company's properties are located onshore
principally in Texas, Louisiana and California. As of March 31, 1999, the
Company owns interests in a total of 486 gross (334 net) producing wells, of
which 267 wells are operated by the Company. As of that date, the Company had
oil and gas rights in leases comprising 51,687 gross (34,553net) acres.
TEXAS PANHANDLE
The Company's Texas Panhandle properties offer long lived oil and
natural gas reserves. There are over 30 proved Brown Dolomite, Granite Wash and
Moore County Lime development drilling locations. The gas produced is high in
natural gas liquids which enables the Company to receive premium prices for its
gas sold. In addition, the implementation of advanced hydraulic fracturing to
new development wells and refracturing existing wells have proven to recover
additional reserves.
PANHANDLE FIELD. The Company has an interest in and operates 166 wells
in the Panhandle of Texas. These wells are located in Gray, Carson, Hutchinson,
Moore and Roberts Counties, Texas. Most of the wells are located in the
Panhandle Field. This field is on the Amarillo uplift west of the Anadarko
Basin. All of the Company's wells produce from the Wolfcamp Brown Dolomite of
Permian age and the Pennsylvanian granite wash. Production is primarily oil,
natural gas liquids and gas on the uplift. The Company's wells on the western
edge of the Anadarko Basin (Bar Nine Field) flanking the uplift are located on
anticlines along a structural ridge. These wells produce gas from the same brown
dolomite found on the uplift in the main Panhandle Field.
NORTH TEXAS
WICHITA COUNTY REGULAR FIELD. The Company owns and operates wells in
the Wichita Regular Field in Wichita County, Texas. The field is on the Bend
Arch north of the Fort Worth basin. The pay zones are the Gunsight sand, the
Thomas sand and an unconsolidated 600' sand. The Gunsight sand is presently
under waterflood. All of these sands are Pennsylvanian in age. The trap is a
combination of statigraphy and structure. The Company is presently performing
remedial recompletions, stimulations and improvements to the waterflood. The
Company owns a 100% working interest ("WI") and 75%-87.5% net revenue interest
("NRI") in this field.
PERMIAN BASIN
EDMISSION CLEARFORK. The Company operates and intends to flood its
Edmission Clearfork project in Lubbock County, Texas. Two existing floods that
have produced more secondary oil from the waterfloods than they produced under
the primary phase of production directly offset the property. The Company has a
100% WI in this field.
AZALEA FIELD. The Company has an interest in 17 producing wells and
one commercial Salt Water Disposal well in the Azalea Field, located
approximately 8 miles Southeast of Midland, Texas in Midland county. It is in
the east central portion of the Midland geological Basin. It is near the edge
of the Grayburg-San Andres shelf as it swings across the basin from the Central
Basin Platform on the west to the eastern shelf on the east. The field is an
anticlinal dome caused by drape over of a carbonate bioherm. The leases are on
or near the crest of the anticline. The potential pays are in the Grayburg,
Permian age sands and carbonates and the San Andres, also Permian, Carbonates
(dolomite and limestone). It is the intention of the Company and its partner to
drill infill wells to both pay zones and to start a waterflood in order to
increase the recovery of oil. Potential increases in production and reserves
could increase the Company's reserve base substantially. The Company has
completed the drilling of two
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development wells. The results of these wells indicate that up to 80% of the
original oil in place still remains in the reservoir and that a portion of the
remaining oil in place can be recovered by a waterflood. The Company holds a
50% WI and a 37.5% - 40% NRI.
CASEY & SHIPP STRAWN FIELDS. The Company owns a 33% WI and a 29% NRI
in these fields in Lea County, New Mexico which is located on a large Penn Reef
Trend. There are 4 existing wells and one proved undeveloped location
identified by 3-D seismic.
FOSTER/COWDEN FIELDS. The Foster/Cowden Fields are located in West
Texas in Ector County. Future is the operator and holds a 100% WI and 87.5% NRI
in 7 producing wells. Five wells produce from the Permian age Grayburg
formation, of which one well is presently shut-in in the Grayburg awaiting a
workover. Two wells produce in the Pennsylvanian age Canyon formation. One well
is an injection well. Future also owns a 25% WI in a co-op injection well
operated by Altura Energy. Low maintenance and long life characterize Grayburg
production.
SAND HILLS FIELD. This field located in Crane County, Texas is
operated by Gruy Petroleum and Burlington Resources, Inc. Future owns WI's
ranging from 33.33% to 50% with NRI of 25% to 40.6%. There are presently 18
active wells that produce from the McKnight, Judkins, Tubb, Holt and
Witchita-Albany sands of Permian age.
GIN UNIT FIELD. Located in Dawson County, Texas this field is operated
by Texaco, Inc. Future holds a 5% WI and 4% NRI in 12 producing wells. The
waterflood also has 8 injector wells and produces from the Gin sand which is
part of the Permian age Strawn Formation.
TEXAS GULF COAST
CROSS CREEK FIELD. The Cross Creek Field is located in northeastern
Harris County, Texas, just north of the city of Houston. It was discovered in
1993 by Chevron and produces from the geopressured upper Wilcox sandstones at a
depth of 11,000 ft. The Wilcox sands are trapped up against the northwest flank
of the prolific Humble salt dome which also produces from the shallower Yegua,
Frio, and Miocene formations. Besides many recompletion opportunities in the
eight producing wellbores, other infill drilling opportunities exist and are
being better defined at this time by interpretation of a 3-D seismic survey.
Future acts as operator and holds a 100% WI with 75-80% NRI.
SAN MIGUEL CREEK FIELD. Located in McMullen County, Texas this field
is operated by Exxon Corporation and Lakewood Operating Co. Future's WI ranges
from 33% to 50% with NRI from 25% to 40%. The field was discovered in 1953
by Humble Oil and is a deep seated salt dome with numerous faults both
overlaying and adjacent to the salt plug. The deeper gas production is from the
Cretaceous age Edwards limestone and the shallower oil production is from the
Eocene age Wilcox sandstone. There have been in excess of 70 wells drilled in
the field; eleven remain active. No well has yet penetrated salt, which is
estimated at 14,000 ft. Upside potential lies in gas compression on the
mechanical side and also undertaking a detailed field study to integrate the
3-D seismic survey.
BRIGHT FALCON FIELD. The Bright Falcon Field is located along the
Texas Gulf Coast in Jackson County. The field is operated by Cox and Perkins.
Two wells are presently producing from the Eocene age, geopressured Yegua
sands, with behind pipe reserves in one of the wells.
NORTH EAST LIMES FIELD. The Company owns a 10% WI and a 7.5% NRI in
this field in Live Oak County, Texas which is operated by Southern Resources
Company. It produces from three geopressured Wilcox sands (F-1, F-4, F-5) and
there are presently 5 producing wells and 8 additional proved, undeveloped
locations. Most wells also have proved behind pipe reserves.
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CANDY B FIELD. This field produces from Oligocene age, normally
pressured, Frio sandstones. Future operates the field and owns a 67.24% WI with
a 52.52% NRI. At present there are 2 producing wells with proved behind pipe
reserves and 2 proved undeveloped drilling locations. The field is located
along the Texas Gulf Coast in San Patricio County.
BUNA FIELD. This field is located in Jasper County, Texas. Two wells
produce from the Eocene age, geopressured Wilcox sandstone on 550 gross acres.
Future is the operator with a 100% WI and an 87.5% NRI.
BRUCE ROY FIELD. This field produces from the Eocene age, geopressured
Yegua sandstone. Future owns both operated and non-operated interests in 4
active wells. The other field operators are Ken Petroleum and United Oil &
Minerals. The field is located in Wharton County, Texas. There are additional
proved non-producing reserves.
TURTLE CREEK FIELD. The Turtle Creek Field produces from Oligocene age
Frio sandstones and is located along the Texas Gulf Coast in Matagorda County.
The field is operated by Aviara Energy. Production is from one well with proved
behind pipe reserves in 2 zones. Additional potential exists in other sands on
the lease block.
GIDDINGS FIELD. This field produces from the Cretaceous age Austin
Chalk and is located in Brazos County, Texas. Future is the operator and owns
100% WI and 81.5% NRI in 13 producing wells (primarily horizontal).
CALIFORNIA
SOUTH COLES LEVEE UNIT. South Coles Levee Unit is located in the
southern end of the San Joaquin Valley, Kern County, California, 15 miles
southwest of the city of Bakersfield. The field lies just southeast of the
petroleum reserve at Elk Hills and was discovered in 1938 by the Ohio Oil
Company (now Marathon Oil Co.) as a result of extensive seismic work. The
discovery well, the "KCL-F" 1 (now the SCLU 74-10) was drilled to a total depth
of 9365' and completed flowing 885 Bpd of 44.5(Degree) gravity oil. The initial
completion was from the Miocene Age, upper Stevens member of the Antelope
formation and designated the F-1 zone. Subsequent drilling discovered a lower
member in 1939 that was called the F-2 zone. Both zones are deepwater,
turbidite sandstones. The field's trap is formed by both structural and
stratigraphic components. Upside opportunities lie in behind pipe zones, infill
drilling, re-initiating the F-1 waterflood, an F-2 waterflood, and shooting a
3-D seismic program. The field is presently operated by Aera Energy L.L.C.
(Mobile-Shell Joint Venture). Future owns a 63.5% WI and 48.6% NRI in 52
currently producing wells.
LOUISIANA
NORTH LEROY FIELD. North Leroy Field is located in southern Louisiana
in Vermilion Parish and is operated by Westland Oil Co. and Cajun Minerals.
There are two active wells which produce from Oligocene age Frio sandstones.
There are additional behind pipe reserves as well as one proved, undeveloped
location.
CHENIERE FIELD. This field is located in northeast Louisiana in
Ouachita Parish and is operated by Brammer-Keystone. Production is from
Jurassic age retrograde condensate Cotton Valley sandstones. The field was
discovered in May 1961 and unitized in November 1966. A natural gas cycling
program was initiated in July 1967 and reservoir blowdown commenced in the fall
of 1988.
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OKLAHOMA
RED FORK TREND. The Company owns 1,340 proven producing acres on the
trend containing 8 producing wells. A recent uphole recompletion in the Oread
Formation by an offset operator is producing 600 MCF per day. The Company,
after reviewing its own logs on its existing wells, believes that 2 and
possibly 4 wells have uphole recompletion potential in the Oread Formation.
SHAWNEE TOWNSITE FIELD. This field is located in Pottawatomie County,
Oklahoma and is operated by Vintage Petroleum, Inc. The waterflood produces
from the Pennsylvanian age Skinner sandstones. The reservoirs are a series of
fluvial-delta channels and bars.
NEW MEXICO
BLUITT FIELD. The Bluitt field produces from the Permian age Wolfcamp
formation. It is operated by H.L. Brown Jr. and is located in Roosevelt County,
New Mexico. The Company owns interests in 5 producing wells.
MISSISSIPPI
NORTH YELLOW CREEK FIELD. This field is located in Wayne County,
Mississippi and operated by Palmer Petroleum. Production is from the Cretaceous
age Tuscaloosa Pilot sand. Nine wells are presently active.
EXPLORATION PROPERTIES
PRICE RANCH FIELD. The Price Ranch, located in the Texas Panhandle,
contains 8,390 net acres. Three prospective features have been identified along
a producing anticlinal trend using well control and 2-D seismic. A 3-D seismic
survey will be utilized to further delineate the three features and to select
drilling locations. The Company operates 1 producing well on the property and
has a 98% WI and a 75% NRI.
CUMBERLAND FIELD. The Cumberland Field is located in Bryan and
Marshall Counties, Oklahoma. The field has a northwest-southeast orientation
and is located on a structural high associated with the southwest fault block
(horst) of a large northwest-southeast oriented horst and graben fault system.
Cumberland field has produced over 73 MMBBLS and over 54 MMMCFG. A substantial
amount of remaining barrels of oil should be producible using present day
recovery methods and oil prices. Proven gas reserves remaining to be produced
are estimated to be at least 30 BCFG. Cumberland field was discovered in 1940.
Producing formations range from the Arbuckle Dolomites (Ordovician in age) up
through the Simpson Sands, Viola and Hunton Limestones, Woodford Chert and
Sycamore Siltstones (Pennsylvanian age). The Simpson Sands are the oil
reservoirs. They also hold a large share of the gas as attic gas in their gas
caps. The Company has obtained oil and gas leases on the flanks of this field.
Major oil companies have conducted an extensive 3-D seismic study of this area
with the idea of extending this field and further developing the remaining
reserves. This extension field is operated by Quintin Little Oil Company and
the Company has an interest in one well.
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MARKETING
All of the Company's oil and gas marketing efforts are contracted out
to EnerTrade, Inc., a Texas based oil and gas marketing consulting firm. Our
strategy for product marketing is to achieve the highest market value while
ensuring absolute credit worthiness of the purchaser.
Gas Sales. Current marketing arrangements generally are month to month
contracts structured to be tied to the Henry Hub price or the appropriate
regional index for the location. This allows for absolute gas price hedging, as
well as location based hedging, as determined by Company management. The
Company's largest gas volumes are at South Coles Levee and Cross Creek. South
Coles Levee gas is sold on a month to month contract tied to the SOCAL Border
Index with various purchasers including Southern Energy Marketing and ARCO
Western Energy. Cross Creek gas is sold to Dynegy, Inc. under a long-term
market based contract tied to the Houston Ship Channel Index.
Oil Sales. The Company's liquid contracts are month to month contracts
structured to be tied to the Cushing price with appropriate transparent
adjustments for location, grade, and transportation. This also allows for
absolute liquid price hedging, as well as location and grade hedging, as
determined by Company management. The largest liquid volume is at South Coles
Levee. South Coles Levee oil and NGLs are sold to EOTT at the appropriate
regional indexes.
Company management chooses to implement pricing hedges as necessary to
guarantee certain cash flow requirements or as market conditions create
opportunity. For 1999, Future has two hedges in place. For the Company's South
Coles Levee production a hedge is in place for 65,000 MMBTU at prices ensuring
a floor of $2.00 per MMBTU and a ceiling of $2.45 per MMBTU based on Southern
California border prices. For the Company's Gulf Coast properties a hedge is in
place for 85,000 MMBTU at prices ensuring a floor of $2.00 per MMBTU and a
ceiling of $2.04 per MMBTU based on Houston Ship Channel pricing. Future has no
hedges in place for liquid production.
COMPETITION
The oil and gas industry is highly competitive. Major oil and gas
companies, independent concerns, drilling and production purchase programs and
individual producers and operators are active bidders for desirable oil and gas
properties, as well as the equipment and labor required to operate those
properties. Many competitors have financial resources substantially greater
than those of the Company. Many competitors also have substantially larger
staffs and facilities than those of the Company. The availability of a ready
market for the Company's oil and gas production depends in part on the cost and
availability of alternative fuels, the level of consumer demand, the extent of
other domestic production of oil and gas, the extent of importation of foreign
oil and gas, the cost of and proximity to pipelines and other transportation
facilities, regulations by state and federal authorities and the cost of
complying with applicable environmental regulations.
REGULATION
General. Domestic development, production and transportation of oil
and gas are extensively regulated at both the federal and state levels.
Legislation affecting the oil and gas industry is under constant review for
amendment, frequently increasing the regulatory burden on the industry. Also,
numerous departments and agencies, both federal and state, have issued rules
and regulations binding on the oil and gas industry and its individual members,
compliance with which is often difficult and costly and some of which carry
substantial penalties for
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noncompliance. The following discussion of oil and gas industry regulation is
summary in nature and is not intended to cover all regulatory matters that
could affect the Company.
State Regulation. State statutes and regulations require permits for
drilling operations and construction of gathering lines, as well as drilling
bonds and reports concerning operations, often creating delays in drilling,
completing new wells and connecting completed wells. Texas and other states in
which the Company conducts operations also have statutes and regulations
governing conservation matters, including regulation of the size of drilling
and spacing or proration units, the density of wells that may be drilled and
the unitization or pooling of oil and gas properties. In addition, state
conservation laws establish maximum rates of production from oil and gas wells,
generally prohibit the venting or flaring of gas and impose certain
requirements on the ratability of production. Many states including Texas also
have regulatory mechanisms that attempt to match monthly production to the
market demand for oil and gas. Certain existing statutes or regulations may set
limits below the rates at which oil and gas is currently produced from wells in
which the Company owns an interest or the prices received for its production.
Federal Regulation. Since the lifting of federal price controls in
1981, sales of crude oil, condensate and natural gas liquids can be made at
uncontrolled market prices. For many years, the sale and transportation of
natural gas in interstate commerce have been subject to regulation under
various federal laws, including the Natural Gas Act of 1938 ("NGA") and the
Natural Gas Policy Act of 1978 ("NGPA"), both of which are administered by the
Federal Energy Regulatory Commission ("FERC"). The provisions of these acts and
regulations are complex. Under these acts, producers and marketers have
historically been required to obtain from FERC certificates to make so called
"first sales" and abandonment authority to discontinue those sales.
Additionally, first sales have been subject to price regulations. However, as a
result of the enactment of the NGPA and the Natural Gas Wellhead Decontrol Act
of 1989, the remaining regulations imposed by the NGA and the NGPA on first
sales were terminated on January 1, 1993. Thus, sales of natural gas may
currently be made at uncontrolled market prices. FERC jurisdiction over
transportation and sales other than first sales has not been affected.
Commencing in the mid-1980s, FERC promulgated several orders designed
to enhance competition in natural gas markets by requiring that access to the
interstate transportation facilities necessary to reach those markets be
provided on an open nondiscriminatory basis. FERC has also adopted regulations
intended to make intrastate natural gas transportation accessible to gas buyers
and sellers on an open nondiscriminatory basis through procedures under which
intrastate pipelines may participate in certain interstate activities without
becoming subject to FERC's full NGPA jurisdiction. These orders have had a
profound influence upon natural gas markets in the United States and, among
other things, have fostered the development of a large short term or spot
market for gas. The most significant of these orders is Order 636.
FERC issued Order 636 in April 1992 to require further restructuring
of the sales and transportation services provided by interstate pipelines that
perform open access transportation. The changes were intended to improve the
competitive structure of the interstate natural gas pipeline industry and to
create a regulatory framework that put gas sellers into more direct contractual
relations with gas buyers. Order 636 required individual pipeline service
restructuring proceedings designed to "unbundle" the services provided by
interstate pipelines so that producers and purchasers of natural gas may secure
transportation and storage services from the most economical source, whether
interstate pipelines or other parties. These initiatives have substantially
reduced or eliminated the interstate pipelines' traditional role as wholesalers
of natural gas in favor of providing only natural gas storage and
transportation services.
Although Order 636 does not actually regulate gas producers, FERC has
stated that Order 636 is intended to foster increased competition within all
phases of the natural gas industry. It is unclear what impact, if any,
increased competition within the natural gas industry under Order 636 will have
on the Company as a producer. Furthermore, because the
11
<PAGE> 12
requirements of Order 636 are still relatively new it is impossible to predict
what effect, if any, Order 636 will have on the Company's gas marketing
operations.
The increasing complexity of the energy regulatory environment has
prompted many producers, including the Company, to rely on highly specialized
experts for the conduct of gas marketing operations. The need for these
specialized services is expected to continue.
Energy Policy Act. The Energy Policy Act of 1992 (the "Energy Act")
was enacted to promote vehicle fuel efficiency and the development of renewable
energy sources such as hydroelectric, solar, wind and geothermal energy. Other
provisions of the Energy Act include initiatives for reducing restrictions on
certain natural gas imports and exports and for expanding and deregulating
natural gas markets. While these provisions could have a positive impact on the
Company's natural gas sales on a long-term basis, any positive impact could be
offset by measures promoting the use of alternative energy sources other than
natural gas. The impact of the Energy Act on the Company has not been material.
Environmental. The Company's activities are subject to various
federal, state and local laws and regulations designed to protect the
environment. The Company does not conduct activities offshore. Operations on
the Company's onshore properties may generally be liable for clean-up costs to
the federal government for up to $50 million for each discharge of oil or
hazardous substances under the Federal Clean Water Act, up to $350 million for
each oil discharge under the Oil Pollution Act of 1990 and for up to $50
million plus response costs for hazardous substance contamination under the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980
(Superfund).
Although no assurances can be made, the Company believes that, absent
the occurrence of an extraordinary event, compliance with existing federal,
state and local laws, rules and regulations regulating the release of materials
in the environment or otherwise relating to the protection of the environment
will not have a material effect upon the capital expenditures, earnings or the
competitive position of the Company with respect to its existing assets and
operations. The Company cannot predict what effect additional regulation or
legislation, enforcement policies thereunder, and claims for damages to
property, employees, other persons and the environment resulting from the
Company's operations could have on its activities.
Management believes that the Company is in compliance with current
applicable environmental laws and regulations and that continued compliance
with existing requirements will not have a material adverse impact on the
Company.
EMPLOYEES
The Company has twenty-three (23) full-time employees all of whom are
associated with the Company's oil and gas activities. Of the twenty-three (23)
employees, eighteen are salaried management personnel, and five are field
personnel. The Company also contracts with various independent contractors for
engineering, land research and fieldwork.
RISK FACTORS
VOLATILITY OF OIL AND GAS PRICES; MARKETABILITY OF PRODUCTION. The
Company's revenues, profitability and future growth and the carrying value of
its oil and gas properties are substantially dependent on prevailing prices of
oil and gas. The Company's ability to maintain or increase its borrowing
capacity and to obtain additional capital on attractive terms is also
substantially dependent upon oil and gas prices. Prices for oil and gas are
subject to large fluctuations in response to relatively minor changes in the
supply of and demand for oil and gas,
12
<PAGE> 13
market uncertainty and a variety of additional factors beyond the control of
the Company. Any substantial and extended decline in the price of oil or gas
would have an adverse effect on the Company's carrying value of its proved
reserves, borrowing capacity, revenues, profitability and cash flows from
operations.
Volatile oil and gas prices make it difficult to estimate the value of
producing properties for acquisition and often cause disruption in the market
for oil and gas producing properties, as buyers and sellers have difficulty
agreeing on such value. Price volatility also makes it difficult to budget for
and project the return on acquisitions and development and exploitation
projects.
In addition, the marketability of the Company's production depends
upon the availability and capacity of gas gathering systems, pipelines and
processing facilities. Federal and state regulation of oil and gas production
and transportation, general economic conditions and changes in supply and
demand all could adversely affect the Company's ability to produce and market
its oil and natural gas. If market factors were to change dramatically, the
financial impact on the Company could be substantial. The availability of
markets and the volatility of product prices are beyond the control of the
Company and represent a significant risk.
RISKS OF EXPLORATION AND DEVELOPMENT. Exploration and drilling
activities are generally considered to be of a higher risk than acquisitions of
producing oil and gas properties. Additionally, certain of the Company's wells
seek to discover deposits of gas at deep formations and have more risk than
wells seeking to develop hydrocarbons from shallow formations. No assurances
can be made that the Company will discover oil and gas in commercial quantities
in its exploration and development operations. Expenditure of a material amount
of funds in exploration for oil and gas without discovery of commercial
quantities of reserves will have a material adverse effect upon the Company.
OPERATING HAZARDS AND UNINSURED RISKS. The Company's operations are
subject to risks inherent in the oil and gas industry, such as blowouts,
cratering, explosions, uncontrollable flows of oil, gas or well fluids, fires,
pollution and other environmental risks. These risks could result in
substantial losses to the Company due to injury and loss of life, severe damage
to and destruction of property and equipment, pollution and other environmental
damage and suspension of operations.
The Company maintains insurance of various types to cover its
operations, including comprehensive general liability. Amounts in excess of
base coverages are provided by an umbrella liability policy. In addition, the
Company maintains operator's extra expense coverage, which provides coverage
for the control of wells drilled and/or producing and redrilling expenses and
pollution coverage for wells out of control.
No assurances can be given that the Company will be able to maintain
adequate insurance in the future at rates the Company considers reasonable. The
occurrence of a significant event not fully insured or indemnified against
could materially and adversely affect the Company's financial condition and
results of operations.
ESTIMATES OF OIL AND GAS RESERVES. This document contains estimates of
oil and gas reserves, and the future net cash flows attributable to those
reserves, prepared by T.J. Smith & Company, Inc., independent petroleum and
geological engineers (the "Reserve Engineers"). There are numerous
uncertainties inherent in estimating quantities of proved reserves and cash
flows attributable to such reserves, including factors beyond the control of
the Company and the Reserve Engineers. Reserve engineering is a subjective
process of estimating underground accumulations of oil and gas that cannot be
measured in an exact manner. The accuracy of an estimate of quantities of
reserves, or of cash flows attributable to such reserves, is a function of the
available data, assumptions regarding future oil and gas prices and
expenditures for future development and exploitation activities, and of
engineering and geological interpretation and judgment. Additionally, reserves
and future cash flows may be subject to material downward or
13
<PAGE> 14
upward revisions, based upon production history, development and exploitation
activities and prices of oil and gas. Actual future production, revenue, taxes,
development expenditures, operating expenses, quantities of recoverable
reserves and the value of cash flows from such reserves may vary significantly
from the assumptions and estimates set forth herein. In addition, reserve
engineers may make different estimates of reserves and cash flows based on the
same available data. In calculating reserves on a BOE basis, gas was converted
to an oil equivalent at the ratio of six Mcf of gas to one Bbl of oil. While
this ratio approximates the energy equivalency of gas to oil on a Btu basis, it
may not represent the relative prices received by the Company on the sale of
its oil and gas production.
The estimated quantities of proved reserves and the discounted present
value of future net cash flows attributable to estimated proved reserves set
forth in this document were prepared by the Reserve Engineers in accordance
with the rules of the Commission, and are not intended to represent the fair
market value of such reserves.
ABILITY TO REPLACE RESERVES. The Company's future success depends upon
its ability to find, develop and acquire additional oil and gas reserves that
are economically recoverable. As is generally the case in the Gulf Coast
region, many of the Company's producing properties are characterized by a high
initial production rate, followed by a steep decline in production. As a
result, the Company must locate and develop or acquire new oil and gas reserves
to replace those being depleted by production. Without successful exploration
or acquisition activities, the Company's reserves and revenues will decline
rapidly. No assurances can be given that the Company will be able to find and
develop or acquire additional reserves at an acceptable cost.
The successful acquisition of producing properties requires an
assessment of recoverable reserves, future oil and gas prices and operating
costs, potential environmental and other liabilities and other factors. Such
assessments are necessarily inexact and their accuracy inherently uncertain. In
addition, no assurances can be given that the Company's exploitation and
development activities will result in any increases in reserves. The Company's
operations may be curtailed, delayed or canceled as a result of lack of
adequate capital and other factors, such as title problems, weather, compliance
with governmental regulations or price controls, mechanical difficulties or
shortages or delays in the delivery of equipment. In addition, the costs of
exploration and development may materially exceed initial estimates.
SUBSTANTIAL CAPITAL REQUIREMENTS. The Company makes, and will continue
to make, substantial capital expenditures for the exploitation, exploration,
acquisition and production of oil and gas reserves. Historically, the Company
has financed these expenditures primarily with cash generated by operations,
proceeds from bank borrowings and issuance of debt and equity securities. The
Company makes solicited and unsolicited offers for the acquisition of oil and
gas properties in the normal course of business.
If revenues or the Company's borrowing base decrease as a result of
lower oil and gas prices, operating difficulties or declines in reserves, the
Company may have limited ability to expend the capital necessary to undertake
or complete future drilling programs. There can be no assurance that additional
debt or equity financing or cash generated by operations will be available to
meet these requirements.
HEDGING OF PRODUCTION. Part of the Company's business strategy is to
reduce its exposure to the volatility of oil and gas prices by hedging a
portion of its production. See "Item 1. Business--Marketing." In a typical
hedge transaction, the Company will have the right to receive from the
counterparts to the hedge, the excess of the fixed price specified in the hedge
over a floating price based on a market index, multiplied by the quantity
hedged. If the floating price exceeds the fixed price, the Company is required
to pay the counterparts this difference multiplied by the quantity hedged. The
Company is required to pay the difference between the floating price and the
fixed price (when the floating price exceeds the fixed price) regardless of
whether the Company has sufficient production to cover the quantities specified
in the hedge.
14
<PAGE> 15
Significant reductions in production at times when the floating price exceeds
the fixed price could require the Company to make payments under the hedge
agreements even though such payments are not offset by sales of production.
Hedging will also prevent the Company from receiving the full advantage of
increases in oil or gas prices above the fixed amount specified in the hedge.
ENVIRONMENTAL AND OTHER REGULATIONS. The Company's operations are
subject to numerous laws and regulations governing the discharge of materials
into the environment or otherwise relating to environmental protection. See
"Item 1. Business - Regulation." These laws and regulations may require the
acquisition of a permit before drilling commences, restrict the types,
quantities and concentration of various substances that can be released into
the environment in connection with drilling and production activities, limit or
prohibit drilling activities on certain lands lying within wilderness, wetlands
and other protected areas, require remedial measures to mitigate pollution from
former operations, such as plugging abandoned wells, and impose substantial
liabilities for pollution resulting from the Company's operations. Moreover,
the recent trend toward stricter standards in environmental legislation and
regulation is likely to continue. The enactment of stricter legislation or the
adoption of stricter regulation could have a significant impact on the
operating costs of the Company, as well as on the oil and gas industry in
general.
The Company's operations could result in liability for personal
injuries, property damage, oil spills, discharge of hazardous materials,
remediation and clean-up costs and other environmental damages. Moreover, the
Company could be liable for environmental damages caused by previous property
owners. As a result, substantial liabilities to third parties or governmental
entities may be incurred; the payment of which could have a material adverse
effect on the Company's financial condition and results of operations. The
Company maintains insurance coverage for its operations, including limited
coverage for sudden and accidental environmental damages, but does not believe
that insurance coverage for environmental damages that occur over time is
available at a reasonable cost. Moreover, the Company does not believe that
insurance coverage for the full potential liability that could be caused by
sudden and accidental environmental damages is available at a reasonable cost.
Accordingly, the Company may be subject to liability or may lose the privilege
to continue exploration or production activities upon substantial portions of
its properties in the event of certain environmental damages.
The Oil Pollution Act of 1990 imposes a variety of regulations on
"responsible parties" related to the prevention of oil spills. The
implementation of new, or the modification of existing, environmental laws or
regulations, including regulations promulgated pursuant to the Oil Pollution
Act of 1990, could have a material adverse impact on the Company.
MARKETS. The Company's ability to market oil and gas from its wells
depends upon numerous factors beyond the Company's control, including the
extent of domestic production and imports of oil and gas, the proximity of the
gas production to gas pipelines, the availability of capacity in such
pipelines, the demand for oil and gas by utilities and other end users, the
availability of alternative fuel sources, the effects of inclement weather, and
state and federal regulation of oil and gas production and federal regulation
of gas sold or transported in interstate commerce. No assurance can be given
that the Company will be able to market all of the oil or gas produced by the
Company or that favorable prices can be obtained for the oil and gas the
Company produces.
In view of the many uncertainties affecting the supply and demand for
oil, gas and refined petroleum products, the Company is unable to predict
future oil and gas prices and demand or the overall effect such prices and
demand will have on the Company. Management does not believe that the loss of
any of the Company's oil purchasers would have a material adverse effect on the
Company's operations. Additionally, since substantially all of the
15
<PAGE> 16
Company's gas sales are on the spot market, the loss of one or more gas
purchasers should not materially and adversely affect the Company's financial
condition.
- --------------------------------------------------------------------------------
ITEM 2. PROPERTIES
- --------------------------------------------------------------------------------
OIL AND GAS PROPERTIES
The Company's significant oil and gas properties are located in
Harris, Gray, Carson, Hutchinson, Moore, McMullen, Live Oak, Jasper and Jackson
Counties in Texas; Vermilion Parish in Louisiana; Grant and Pottawatomie
Counties in Oklahoma; and Kern County, California. Generally, production is
from depths of less than 12,000 feet. For additional information about these
properties, see "ITEM 7 - Financial Statements and Supplementary Data".
In the oil and gas industry and as used herein, the word "gross" well
or acre is a well or acre in which a WI is owned; the number of gross wells is
the total number of wells in which a WI is owned. A "net" well or acre is
deemed to exist when the sum of fractional ownership WIs in gross wells or
gross acres equals one. The number of net wells or acres is the sum of the
fractional WIs owned in gross wells or gross acres.
PRODUCTIVE WELLS AND ACREAGE
Shown below are tabulations of the productive wells and estimates of
the Company's net interest in total proved reserves of crude oil, condensate,
natural gas liquids and natural gas as of December 31, 1998, based on
information prepared by the Company's Reserve Engineers. All wells are located
in the United States.
<TABLE>
<CAPTION>
PRODUCTIVE WELLS
----------------------------------
Gross Net
----- ---
<S> <C> <C>
Gas 116 60
Oil 370 274
--- ---
Totals 486 334
=== ===
</TABLE>
The following table sets forth developed and undeveloped acreage owned by the
Company as of December 31, 1998.
<TABLE>
<CAPTION>
DEVELOPED ACREAGE UNDEVELOPED ACREAGE TOTAL ACREAGE
------------------- ------------------- ----------------
GROSS NET GROSS NET GROSS NET
------ ------ --------- ----- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Texas 22,423 15,103 10,688 9,856 33,111 24,959
New Mexico 2,357 1,789 -- -- 2,357 1,789
Oklahoma 5,795 2,684 1,630 98 7,425 2,782
Louisiana 2,088 995 -- -- 2,088 995
Mississippi 460 62 -- -- 460 62
California 6,246 3,965 -- -- 6,246 3,965
------ ------ ------ ----- ------ ------
Total 39,369 24,599 12,318 9,954 51,687 34,553
====== ====== ====== ===== ====== ======
</TABLE>
16
<PAGE> 17
RESERVES
The Company's independent Reserve Engineers prepared the estimates of
the proved reserves and the future net cash flows (and present value thereof)
attributable to such proved reserves. Reserves were estimated using oil and gas
prices and production and development costs in effect on December 31 of each
such year, without escalation, and were otherwise prepared in accordance with
the Commission regulations regarding disclosure of oil and gas reserve
information.
Petroleum engineering is not an exact science and involves estimates
based upon numerous factors, many of which are inherently variable and
uncertain. Consequently, reserve estimates are imprecise and are subject to
change as additional information becomes available. Estimates based upon shore
periods of production may not be reliable as those based upon longer production
histories. Further, estimates of oil and gas reserves, of necessity, are
projections based on engineering data. As a result of the uncertainties
inherent in the interpretation of such data, there can be no assurance that the
Company's estimated oil and gas reserves would ultimately be developed.
Estimates of the reserves and future net revenues involve projecting future
results under current operating and economic conditions. Actual production,
revenues, taxes, development expenditures and operating expenses may not occur
as estimated. Product prices vary over time due to market forces, which are
beyond the Company's control. The Company has not filed any reports with other
federal agencies which contain an estimate of total proved net oil and gas
reserves.
The following table sets forth certain information about the estimated
proved reserves of the Company as of the dates set forth below.
<TABLE>
<CAPTION>
PROVED RESERVES
---------------------------
Oil &
Natural gas
Liquids Gas
------------- ----------
(BBLS) (MCFG)
<S> <C> <C>
Balance, January 1, 1996 113,000 1,220,000
Purchase of minerals in place 5,000 --
Revisions of previous estimates (56,000) (767,000)
Abandonment of minerals (3,000) (181,000)
Production (7,000) (29,000)
--------- ----------
Balance, December 31, 1996 52,000 243,000
Purchase of minerals in place 2,071,000 6,176,000
Revisions of previous estimates 89,000 (220,000)
Production (33,000) (60,000)
--------- ----------
Balance, December 31, 1997 2,179,000 6,139,000
Purchase of minerals in place 3,245,000 55,840,000
Revisions of previous estimates (1,728,700) 8,583,500
Production (126,000) (1,109,000)
--------- ----------
Balance, December 31, 1998 3,569,300 69,453,500
========= ==========
</TABLE>
The following tables summarize the net production owned by the Company
and produced to its interest, less production and royalties due others, for all
properties in which the Company had an interest during the periods indicated.
The net production to the Company increased during 1998 as a result of the
significant number of oil and gas acquisitions made in 1998. (See "ITEM 1. -
BUSINESS.")
17
<PAGE> 18
OPERATIONS
<TABLE>
<CAPTION>
ANNUAL PRODUCTION 1998 1997 1996
<S> <C> <C> <C>
Barrels of oil equivalents (Boe) 310,833 43,000 11,833
Natural gas (Mcf) 1,109,000 60,000 29,000
Oil, natural gas liquids & condensate (MBbls) 126,000 33,000 7,000
</TABLE>
DAILY PRODUCTION
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1998 1997 1996
------ ------- -------
<S> <C> <C> <C>
Average net daily production
Gas (MCFG) 3,038 164 79
Oil and NGL (Bbls) 345 90 19
Average sales price
Gas ($ per MCFG) $ 2.34 $ 1.91 $ 2.82
Oil and NGL ($ per Bbl) $ 8.46 $ 14.58 $ 21.32
</TABLE>
The average production cost per barrel of oil equivalent, which
includes lifting costs (electricity, fuel, water disposal, repairs,
maintenance, pumper, transportation, and similar items), and production taxes,
were $ 5.87 for 1998, $9.74 for 1997, and $15.80 for 1996. To facilitate
comparisons, units of production are expressed in common units, with gas
converted to a common unit of oil production on the basis of six MCFG of gas
for one Bbl of oil.
The Company sells gas on a contract basis to one of several purchasers
in each of the areas in which it has productive gas wells. The Company sells
oil at posted field prices to one of several purchasers in each of the areas in
which it has productive oil wells. See "ITEM 1. Business - Marketing".
DRILLING ACTIVITIES
The wells drilled by the Company during the periods indicated are
summarized in the following table.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------------
1998 1997 1996
----- ----- ----
Gross Net Gross Net Gross Net
----- --- ----- --- ----- ---
<S> <C> <C> <C> <C> <C> <C>
Development
Gas 1 .10 -- -- 1 .15
Oil -- -- 2 2 2 .14
Non-productive -- -- -- -- -- --
----- --- ----- ----- ----- ---
Totals 1 .10 2 2 3 .29
===== === ===== ===== ===== ===
Exploratory
Gas -- -- -- -- -- --
Oil -- -- 1 .0042 -- --
Non-productive -- -- -- -- -- --
----- --- ----- ----- ----- ---
Totals -- -- 1 .0042 -- --
===== === ===== ===== ===== ===
</TABLE>
18
<PAGE> 19
TITLE TO PROPERTIES
The Company believes that the title to its oil and gas properties is
good and defensible in accordance with standards generally accepted in the oil
and gas industry, subject to such exceptions which, in the opinion of the
Company, are not so material as to detract substantially from the use or value
of such properties. The Company's properties are typically subject, in one
degree or another, to one or more of the following: royalties and other burdens
and obligations, express or implied, under oil and gas leases; overriding
royalties and other burdens created by the Company or its predecessors in
title; a variety of contractual obligations (including, in some cases,
development obligations) arising under operating agreements, farmout
agreements, production sales contracts and other agreements that may affect the
properties or their titles; back-ins and reversionary interests existing under
purchase agreements and leasehold assignments; liens that arise in the normal
course of operations, such as those for unpaid taxes, statutory liens securing
obligations to unpaid suppliers and contractors and contractual liens under
operating agreements; pooling, unitization and communitization agreements,
declarations and orders; and easements, restrictions, rights-of-way and other
matters that commonly affect property. To the extent that such burdens and
obligations affect the Company's rights to production revenues, they have been
taken into account in calculating the Company's NRIs and in estimating the size
and value of the Company's reserves. The Company believes that the burdens and
obligations affecting its properties are conventional in the industry for
properties of the kind owned by the Company.
MINERAL HOLDINGS
The Company holds a variety of mineral interests, none of which is in
production. The Company intends to sell these holdings or, in the event that a
sale is not feasible, enter into sublease or joint venture arrangements with
third parties. Pending sale or such arrangements, the Company may drill and
trench to further delineate reserves on certain of the properties. The
Company's mineral holdings are not material to the Company's business.
EXECUTIVE OFFICES
The Company's principal executive offices, consisting of approximately
14,885 square feet of office space located at 700 Louisiana, Suite 3700,
Houston, Texas 77002, are rented from an unrelated party at a current rate of
$20,010 per month, under a lease expiring August 31, 2002.
The Company also maintains a field operations office at Pampa, Texas.
- -------------------------------------------------------------------------------
ITEM 3. LEGAL PROCEEDINGS
- -------------------------------------------------------------------------------
Neither the Company nor any of its property is subject to any material
pending legal proceeding.
- -------------------------------------------------------------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -------------------------------------------------------------------------------
No matters were submitted to a vote of the shareholders during the
fourth quarter of 1998.
19
<PAGE> 20
PART II
- --------------------------------------------------------------------------------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
- --------------------------------------------------------------------------------
The Company's Common Stock is traded in the over-the-counter market
and is quoted on the OTC Electronic Bulletin Board of the National Association
of Securities Dealers, Inc. under the symbol "FUPT". The following table sets
forth the high and low bid quotations for the Company's Common Stock as
reported on the OTC Bulletin Board for the periods indicated, based on
interdealer bid quotations, without markup, markdown, commissions or
adjustments (which may not reflect actual transactions). The Company's Common
Stock has traded on a very limited basis during the preceding two years.
<TABLE>
<CAPTION>
Bid Quotation
------------------------
High Low
------ ------
1998
- ----
<S> <C> <C>
Quarter ended March 31 $ 0.625 $ 0.312
Quarter ended June 30 $ 0.687 $ 0.437
Quarter ended September 30 $ 0.531 $ 0.343
Quarter ended December 31 $ 0.406 $ 0.260
1997
- ----
Quarter ended March 31 $ 0.875 $0.1875
Quarter ended June 30 $ 1.000 $ 0.625
Quarter ended September 30 $0.9687 $0.6562
Quarter ended December 31 $ 0.625 $ 0.250
</TABLE>
As of March 31, 1999, immediately prior to the date of this report,
the Company's Stock was quoted on the OTC Electronic Bulletin Board at a
closing bid of $0.391.
On March 31, 1999, the Company had approximately 860 shareholders.
The Company has not paid dividends on the Common Stock and intends to
retain its cash flow from operations, net of preferred stock dividends, for the
future operation and development of its business. In addition, the Company's
primary credit facility restricts payments of dividends on its Common Stock.
UNREGISTERED SALES OF SECURITIES
During 1998, the year covered by this report, the Company sold
securities without registration under the Securities Act of 1933 (the
"Securities Act") in the following transactions:
In May 1998, the Company issued 150,000 shares of Common Stock to NCI
Enterprises, Inc. for the acquisition of an interest in the Shawnee Townsite
Unit, valued at $37,500. In conjunction with this transaction, the Company
issued 31,238 common shares to EnCap Equity 1994, L.P. and 18,762 shares to
Energy Capital Investment Company PLC valued at $7,809.50 and $4,690.50,
respectively.
20
<PAGE> 21
In July 1998, the Company issued 110,000 shares of Common Stock
pursuant to previously granted stock options at an exercise price of $.53125.
In August 1998, the Company acquired certain producing properties from
Resources for $5.8 million, 4.7 million shares of Common Stock and a warrant
for 250,000 shares of Common Stock and the EnCap entities agreed to modify and
extend their outstanding loans in exchange for 2.8 million shares of Common
Stock. In conjunction with an employment agreement entered into as part of this
transaction, B. Carl Price was issued 350,000 options to purchase Common Stock.
See "ITEM 1. Business - Strategic Developments".
In October 1998, the Company acquired an additional interest in the
Shawnee Townsite Unit and acquired an interest in the Gin Unit from NCI
Reserves, Ltd., Southwest Sulfur & Oil, Inc., Wayne Newkumet, and Castello
Enterprises, Inc. for 280,000 shares of Common Stock.
In December 1998, the Company acquired substantially all of the assets
and liabilities of Resources for $2 million and 100,000 shares of Preferred
Stock. See "ITEM 1. Business - Strategic Developments".
In December 1998, the Company issued an aggregate of 8,333,333 shares
of Common Stock to Bargo and TJG in exchange for the cancellation of
outstanding debt aggregating $4 million. See "ITEM 1. Business - Strategic
Developments".
The securities issued in the transactions described above were issued
in reliance on the exemption from the registration and prospectus delivery
requirements of the Securities Act provided in ss. 4(2) thereof. Each purchaser
was provided with business and financial information respecting the Company and
was provided with the opportunity to obtain additional information in order to
verify the information provided or to further inform themselves with respect to
the Company. Each of the persons acquiring such securities acknowledged in
writing that such person was obtaining "restricted securities" as defined in
rule 144 under the Securities Act; that such shares could not be transferred
without registration or an available exemption therefrom; that such person must
bear the economic risk of the investment for an indefinite period; and that the
Company would restrict the transfer of the securities in accordance with such
representations. Such persons also agreed that any certificates representing
such shares would be stamped with a restrictive legend covering the transfer of
such shares. The certificates representing the foregoing shares bear an
appropriate restrictive legend conspicuously on their face, and stop transfer
instructions are noted on the Company's stock transfer records.
- -------------------------------------------------------------------------------
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
- -------------------------------------------------------------------------------
GENERAL
The Company's revenues, profitability and future growth and
the carrying value of its oil and gas properties are substantially dependent on
prevailing prices of oil and gas and its ability to find, develop and acquire
additional oil and gas reserves that are economically recoverable. The
Company's ability to maintain or increase its borrowing capacity and to obtain
additional capital on attractive terms is also influenced by oil and gas
prices.
Prices for oil and gas are subject to large fluctuations in response
to relatively minor changes in the supply of and demand for oil and gas, market
uncertainty and a variety of
21
<PAGE> 22
additional factors beyond the control of the Company. These factors include
weather conditions in the United States, the condition of the United States
economy, the actions of the Organization of Petroleum Exporting Countries,
governmental regulation, political stability in the Middle East and elsewhere,
the foreign supply of crude oil and natural gas, the price of foreign imports
and the availability of alternate fuel sources. Any substantial and extended
decline in the price of crude oil or natural gas would have an adverse effect
on the Company's carrying value of its proved reserves, borrowing capacity,
revenues, profitability and cash flows from operations.
The Company uses the full cost method of accounting for the Company's
investment in oil and gas properties. Under the full cost method of accounting,
all costs of acquisition, exploration and development of oil and gas reserves
are capitalized into a "full cost pool." Oil and gas properties in the pool,
plus estimated future expenditures to develop proved reserves and future
abandonment, site remediation and dismantlement costs, are depleted and charged
to operations using the unit of production method based on the portion of
current production to total estimated proved recoverable oil and gas reserves.
To the extent that such capitalized cost (net of depreciation, depletion and
amortization) exceed the discounted future net cash flows on an after-tax basis
of estimated proved oil and gas reserves, such excess costs are charged to
operations. Once incurred, the writedown of oil and gas properties is not
reversible at a later date even if oil or natural gas prices increase.
The Company does not have a specific acquisition budget because of the
unpredictability of the timing and size of forthcoming acquisition activities.
There is no assurance that the Company will be able to identify suitable
acquisition candidates in the future, or that the Company will be successful in
the acquisition of producing properties. In order to finance any possible
future acquisitions, the Company will either use borrowings available under the
its credit facility or the Company may seek to obtain additional debt or equity
financing in the public or private capital markets. Further, there can be no
assurances that any future acquisitions made by the Company will be integrated
successfully into the Company's operations or will achieve desired
profitability objectives.
In June 1998 the Financial Accounting Standards Board issued SFAS 133
"Accounting for Derivative Instruments and Hedging Activities." This standard is
effective for fiscal years beginning after June 15, 1999 (January 1, 2000 for
the Company). SFAS 133 requires that all derivative instruments be recorded on
the balance sheet at their fair value. Changes in the fair value of derivatives
are recorded each period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a hedge transaction
and, if it is, the type of hedge transaction. The Company has not yet completed
its evaluation of the impact of the adoption of this new standard.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of capital are its cash flows from
operations, borrowings and issuance of debt and equity securities.
The Company reported net income of $1,408,000 for the year ended
December 31, 1998 compared to a consolidated net loss of $12,000 for the year
ended December 31, 1997. At December 31, 1998, the Company had negative working
capital of $8,034,000, which was a $7,763,000 increase from the $271,000 working
capital deficit that the Company had as of December 31, 1997. This decrease in
working capital was due primarily to the current portion of long term debt
resulting from the acquisition of proved reserves referred to above. Management
believes cash flow from those reserves along with the possible issuance of
additional equity will be sufficient to eliminate the working capital deficit.
Effective August 14, 1998, the Company entered into a credit agreement
with Bank of America ("Credit Agreement"). Borrowings under the Credit
Agreement are secured by mortgages covering substantially all of the Company's
producing oil and gas properties as well as by certain pledges of the Company's
Common Stock. See "Item 1. Business - Strategic Developments." The Credit
Agreement initially provided for a commitment amount of $20 million and a $10.5
million borrowing base ("Borrowing Base"). This Credit Agreement was amended
and increased to $27.5 million on November 15, 1998. In December 1998, the
Company amended and restated the Credit Agreement to increase the commitment
amount to $50 million subject to a borrowing base as determined by Bank of
America on an acquisition by acquisition basis. The Credit Agreement is
comprised of two Tranches, Tranche A and Tranche B.
22
<PAGE> 23
At December 31, 1998, the Tranche A loan commitment amount was $38
million, of which $30.9 million had been borrowed. The Company has a choice of
two different interest rates under the Tranche A loan, the Base Rate or the
LIBO Rate. The debt bears interest under the Base Rate at the higher of the
lender's "Reference Rate" or the Federal Funds Rate plus .5%. The debt bears
interest under the LIBO Rate at the LIBO rate (reserve adjusted) plus 2%. The
Company may convert any portion of the outstanding debt from one interest rate
type to another in increments of $50,000 with a minimum transfer amount of
$250,000. The Company may borrow, pay, reborrow and repay under the Credit
Facility until December 4, 1999, on which date, the revolving credit line
converts to a four-year term loan with quarterly principal installments.
At December 31, 1998, the Tranche B loan commitment amount was $12
million, of which $8.945 million had been borrowed. The Company has a choice of
two different interest rates under the Tranche B loan, the Base Rate or the
LIBO Rate. The debt bears interest under the Base Rate at the higher of the
lender's "Reference Rate" plus 2% (through April 4, 1999, and plus 4%
thereafter until maturity) or the Federal Funds Rate plus 2.5% (through April
4, 1999, and plus 4.5% thereafter until maturity). The debt bears interest
under the LIBO Rate at the LIBO rate (reserve adjusted) plus 4% (through April
4, 1999, and plus 6% thereafter until maturity). The Company may convert any
portion of the outstanding debt from one interest rate type to another in
increments of $50,000 with a minimum transfer amount of $250,000. On June 4,
1999 the Company must repay in full all amounts outstanding under Tranche B.
CASH FLOW TO OPERATING ACTIVITIES
Operating activities of the Company during 1998 provided net cash of
$350,000. The Company acquired oil and gas properties totaling $29,857,000 in
1998 with the majority of these acquisitions occurring in the 4th quarter of
the year. Investing activities in 1998 used net cash of $31,692,000, primarily
due to the acquisition of these oil and gas properties. Financing activities in
1998 provided net cash of $32,290,000 primarily due to proceeds from the
issuance of debt.
Operating activities of the Company during 1997 provided net cash of
$154,000. The Company purchased two (2) partnerships and the assets of a third
for $6.6 million and 1,575,000 shares of the Company's common stock. Investing
activities in 1997 provided net cash of $16,000, primarily due from cash in the
purchased partnerships. Financing activities in 1997 provided net cash of
$9,000 primarily due to proceeds from the exercise of stock options.
RESULTS OF OPERATIONS
Comparison of Years Ended December 31, 1998 and 1997
Total revenues in 1998 increased to $3,679,000 from $772,000 in 1997,
primarily due to the acquisition of oil and gas properties. Production costs
increased due to the purchase of these proved reserves. General and
administrative expenses increased to $783,000 from $154,000 in 1997 due to
the acquisition of Resources and increased overhead associated with the
Company's increased acquisition activity. The Company had net income of
$1,408,000 in 1998 compared to a net loss of $12,000 in 1997, primarily due to
the acquisition of proved reserves. The majority of the cash flow generated
from these additional reserves was primarily used to pay interest costs.
Comparison of Years Ended December 31, 1997 and 1996
Total revenues in 1997 increased to $772,000 from $378,000 in 1996,
primarily due to the acquisition of two (2) partnerships and the assets of a
third. Production costs increased due to the purchase of the proved reserves.
General and administrative expenses increased to
23
<PAGE> 24
$154,000 from $120,000 in 1996. The Company incurred a net loss in 1997 of
$12,000 compared to net income of $119,000 in 1996, primarily due to $102,000
being recognized in 1996 for the sale of mining properties, which did not recur
in 1997.
INFLATION
The Company's activities have not been, and in the near term are not
expected to be, materially affected by inflation.
YEAR 2000 ISSUE
Year 2000 issues result from the inability of computer programs or
computerized equipment to accurately calculate, store or use a date subsequent
to December 31, 1999. The erroneous date can be interpreted in a number of
different ways; typically the Year 2000 is interpreted as the year 1900. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices or engage in similar normal business. Because the
Company's software systems are relatively new, the Company was aware of and
considered Year 2000 issues at the time of purchase or development of such
systems. In addition, the Company has recently completed an assessment of its
core financial and operational software systems to ensure compliance. The
licensor of the Company's core financial software system has certified that
such software is Year 2000 compliant. Additionally, other less critical
software systems and various types of equipment have been assessed and are
believed to be compliant.
The Company believes that the potential impact, if any, of these less
critical systems not being Year 2000 compliant will at most require employees
to manually complete otherwise automated tasks or calculations and it should
not impact the Company's ability to continue exploration, drilling, production
or sales activities. The Company has initiated and will continue to have formal
communications with its significant suppliers, business partners and customers
to determine the extent to which the Company is vulnerable to those third
parties' failure to correct their own Year 2000 issues. There can be no
guarantee, however, that the systems of other companies on which the Company's
systems rely will be timely converted, or that a failure to convert by another
company, or a conversion that is incompatible with the Company's systems would
not have a material adverse effect on the Company.
The Company has determined it has no exposure to contingencies related
to the Year 2000 issue with respect to products sold to third parties. The
Company has and will utilize both internal and external resources to complete
tasks and perform testing necessary to address the Year 2000 issue. The Company
has substantially completed the Year 2000 project. The Company has not
incurred, and does not anticipate that it will incur, any significant costs
relating to the assessment and remediation of Year 2000 issues.
- -------------------------------------------------------------------------------
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- -------------------------------------------------------------------------------
The table of contents of the financial statements and supplementary
data included in this report is contained in "ITEM 13. EXHIBITS AND REPORTS ON
FORM 8-K".
24
<PAGE> 25
- -------------------------------------------------------------------------------
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
- -------------------------------------------------------------------------------
On February 15, 1999 the Company engaged PricewaterhouseCoopers LLP
("PWC") as its independent auditors. Hein & Associates LLP ("Hein") was
dismissed by approval of the Company's Board of Directors. This change was
reported on Form 8-K filed with the SEC on February 25, 1999.
During the Company's two most recent fiscal years there were no
disagreements with Hein on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements if not resolved to the satisfaction of Hein would have caused
Hein to make reference to the subject matter of the disagreement in its report
on the financial statements for such years.
PART III
- -------------------------------------------------------------------------------
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
- -------------------------------------------------------------------------------
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the name, age and position of each
executive officer and director of the Company.
<TABLE>
<CAPTION>
Director
Term
Name Age Position Expires
---- --- -------- -------
<S> <C> <C> <C>
Tim J. Goff 40 Chairman of the Board, Chief
Executive Officer, President 2002
B. Carl Price 40 Vice-President, Director 2002
Thomas D. Barrow 52 Director 2001
D. Martin Phillips 45 Director 2001
Gary R. Petersen 52 Director 2002
Mary E. Vanderhider 34 Director, Vice President of
Administration, Secretary 2000
Kimberly G. Seekely 37 Director, Chief Financial Officer 2000
</TABLE>
The articles of incorporation of the Company provide that the board of
directors shall be divided into three classes of approximately equal size, with
the directors in each class elected for a three-year term. In connection with
the August Transaction, Resources, the EnCap Entities, the Price Group and the
Company entered into a Shareholders' Agreement whereby the parties
25
<PAGE> 26
thereto agreed to cause the Board of Directors of Future to be composed of
seven persons. Each party further agreed to vote their shares of Common Stock in
connection with the election of directors of the Company for two nominees of
Resources, two nominees of the EnCap Entities and three nominees of the Price
Group. In addition, the parties to the Shareholders' Agreement agreed that one
of the nominees of Resources would be the Chairman of the Board of Directors of
the Company. The parties to the Shareholders' Agreement have also granted to
each other certain rights of first refusal and tag along rights with respect to
proposed transfers of their Common Stock. Pursuant to the December Transaction,
Resource's (and certain of its affiliates) board representation was increased
from three director nominees to four director nominees and the Price Group's
board representation was decreased from three director nominees to one director
nominee. Pursuant to the Pending Transaction, Resources board representation
would decrease, while the board representation of certain investors would
increase. No assurances can be given, however, that the Pending Transaction will
be consummated or as to the final terms of the Pending Transaction. See "Item 1.
Business Strategic Developments."
Officers serve at the pleasure of the board of directors. Biographical
information for each of the executive officers and directors is presented
below:
TIM J. GOFF
Since December 1998, Tim J. Goff has served as the Company's president
and chief executive officer. Mr. Goff was appointed as Chairman of the Board of
Directors in August of 1998. Mr. Goff has over 18 years of oil and gas industry
experience. Prior to his present position with Future, Mr. Goff was Managing
Principal and Chief Executive Officer of Bargo Energy Company ("Bargo") which
was formed in 1993 to acquire oil and gas properties. In the five years he ran
Bargo, Mr. Goff acquired more than $100 million of oil and gas properties.
Prior to forming Bargo, Mr. Goff served as Vice President of Special Projects
and Assistant to the Chairman of the Board and CEO of Torch Energy Advisors,
Inc. He holds a Bachelor of Business Administration Degree in Accounting from
Central Arkansas University.
B. CARL PRICE
Since December 1998, B. Carl Price has served as a vice president of
the Company. From 1993 until the transaction with Resources in December 1998,
he served as the Company's President. He continues to serve as a director of
the Company, a position he has held since 1993. He attended Oklahoma State
University where he majored in business. Mr. Price has been a landman since the
mid 1980's where he gained much experience by initiating, managing, acquiring
and operating oil and gas ventures and properties.
THOMAS D. BARROW
Thomas D. Barrow has been a director of the Company since August 1998.
Mr. Barrow has over 24 years of oil and gas industry experience. Mr. Barrow was
Managing Principal of Bargo since its formation in 1993. Prior to forming Bargo
with Mr. Goff, he was co-founder and President of Barrow Energy Company, and
B&N Petroleum, Inc., and currently serves as a Director of Nuevo Energy
Company, a New York Stock Exchange listed company.
D. MARTIN PHILLIPS
D. Martin Phillips has been a director of the Company since August
1998. Mr. Phillips is a Managing Director and principal of EnCap Investments
L.C. which is a funds management and investment banking firm which focuses
exclusively on the oil and gas industry. Prior to joining EnCap, Mr. Phillips
served as Senior Vice President in the Energy Banking Group of NCNB Texas
National Bank in Dallas, Texas. He has over 20 years of experience in energy
banking.
26
<PAGE> 27
Mr. Phillips also serves as a Director of Breitburn Energy Company LLC and is
on the board of the Houston Producers' Forum.
GARY R. PETERSEN
Gary R. Petersen has been a director of the Company since August 1998.
Mr. Petersen is a co-founder and principal of EnCap Investments L.C. with over
25 years of energy experience. EnCap Investments specializes in procuring and
managing institutional capital and providing merchant/investment banking
services for exploration and production companies. Mr. Petersen had previously
served as Senior Vice President and Manager of the Corporate Finance Division
of the Energy Banking Group for RepublicBank Corporation in Houston, Texas. He
holds B.B.A. and M.B.A. degrees in finance from Texas Tech University and has
done post graduate studies at American University in Washington D.C. and the
Stonier Graduate School of Banking at Rutgers University. He is also a member
of the Board of Directors of Nuevo Energy Inc., Belden & Blake Energy Company,
Energy Capital Investment Company and Equus II, Inc.
MARY E. VANDERHIDER
Mary E. Vanderhider has been the corporate secretary, vice president
of administration and a director of the Company since December 1998. Prior to
her affiliation with Future, she served as Vice President of Bargo where she
began as one of the founders in 1993. Ms. Vanderhider attended Stephen F.
Austin State University where she majored in business administration.
KIMBERLY G. SEEKELY
Kimberly G. Seekely has been a director of the Company since December
1998. Prior to her affiliation with Future, she worked for Bargo as its chief
accounting officer. Ms. Seekely has over 14 years of financial and private
industry experience. Ms. Seekely attended Bowling Green State University where
she received a Bachelor of Science in Business Administration. She is a
certified public accountant.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Based solely upon a review of Forms 3, 4 and 5 and amendments thereto
furnished to the Company during or respecting its last fiscal year, except as
described below, no person who, at any time during the most recent fiscal year
was a director, officer, beneficial owner of more than 10% of any class of
equity securities of the Company or any other person known to be subject to
Section 16 of the Exchange Act failed to file on a timely basis reports
required by Section 16(a) of the Exchange Act.
B. Carl Price filed one late Report on Form 4, regarding a transaction for the
exercise of certain stock options on September 8, 1998, for a transaction in
April 1998.
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<PAGE> 28
- -------------------------------------------------------------------------------
ITEM 10. EXECUTIVE COMPENSATION
- -------------------------------------------------------------------------------
EXECUTIVE OFFICER COMPENSATION
The following table sets forth, for each of the last three fiscal
years, cash compensation received by any person serving as chief executive
officer of the Company during the last preceding fiscal year. No other
executive officer was paid a salary and bonus that exceeded $100,000 for the
most recent fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
--------------------------------------------
Annual Compensation Awards Payouts
- ------------------------------------------------------------------ ---------------------- ------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Securities
Annual Restricted Underlying All Other
Year Compen- Stock Options/ LTIP Compen-
Name and Principal Ended Salary Bonus sation Award(s) SARs Payouts sation
Position (1) Dec. 31 ($) ($) ($) (#) (#) ($) ($)
- ------------------ ------- ------ ----- ------- ---------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
B. Carl Price, 1998 $92,708 -- $28,500(2) -- 350,000(3) -- --
Vice President, Director 1997 $12,000 -- $50,300(2) -- 200,000(4) -- --
1996 $12,000 -- $21,583(2) -- -- -- --
Tim J. Goff,
CEO 1998 $25,000 -- -- -- -- -- --
President, Director
</TABLE>
(1) On December 15, 1998 in conjunction with the acquisition of Resources, Tim
J. Goff became CEO and President of the Company and B. Carl Price, who had
served as CEO and President during 1997 and 1996, became Vice President. Future
agreed to reimburse Resources for salaries and expenses from the effective date
of November 1, 1998.
(2) Represents amounts paid during 1998, 1997 and 1996 to Price Oil & Gas Co.,
a company owned by Mr. Price, for consulting services provided to the Company.
(3) On August 14, 1998, the Company granted to B. Carl Price a ten-year option
to purchase 350,000 shares at an exercise price of $.40625, based on the
approximate market price of the Company's common stock on the date of grant.
(4) On January 10, 1997, the Company granted to B. Carl Price five-year options
to purchase 200,000 shares, respectively, at $0.44275 per share, based on the
approximate market price of the Company's common stock on the date of grant.
28
<PAGE> 29
The following table sets forth, for the last fiscal year, option
grants to the executive officers named in the Summary Compensation Table.
Option Grants in 1998
<TABLE>
<CAPTION>
Number of Percent of
Securities Total Options
Underlying Granted to Exercise Expiration
Name Options Granted Employees in 1998 Price Date
---- --------------- ----------------- ----- ----
<S> <C> <C> <C>
B. Carl Price 350,000 $0.40625 (1) August 14, 2008
Tim J. Goff -- -- -- --
</TABLE>
(1) The option was granted on August 14, 1998. The price of the Common Stock
on the OTC Bulletin Board on August 14, 1998 was $.40625 and all options
were vested upon issue.
AGGREGATE OPTION EXERCISES IN 1998 AND OPTION VALUES
The following table sets forth information respecting the exercise of
options during the fiscal year ended December 31, 1998, by executive officers
named in the Summary Compensation Table and the fiscal year end values of
unexercised options.
<TABLE>
<CAPTION>
Number of Value of
Securities Unexercised
Underlying In-the-Money
Unexercised Options
Options at FY End at FY End ($)
Shares Acquired Exercisable/ Exercisable/
Name on Exercise (#) Value Realized ($) Unexercisable Unexercisable
---- --------------- ------------------ ------------- -------------
<S> <C> <C> <C> <C>
B. Carl Price............. -- -- 587,720/-- $ 2,494/--
Tim J. Goff............... -- -- --/-- $ --/--
</TABLE>
EMPLOYMENT AGREEMENTS, DEFERRED SALARY AND BENEFITS
On August 14, 1998, the Company entered into an Amended and Restated
Executive Employment Agreement with B. Carl Price. The agreement is for a
three-year term and is automatically extended for an additional year upon each
anniversary of the effective date unless terminated. The minimum annual
compensation is $125,000 subject to adjustments and bonuses. At the option of
Mr. Price, a portion of the compensation may be paid in stock of the Company,
based on the market price of the stock. See "ITEM 11. Security Ownership of
Certain Principal Stockholders and Management".
29
<PAGE> 30
STOCK OPTION AND AWARD PLAN
The Company has adopted, and the shareholders have approved, a 1993
Employee Incentive Plan (the "Plan") intended to advance the interests of the
Company by attracting competent executive personnel and other employees,
ensuring the retention of the services of existing executive personnel and
employees, and providing incentives to all of such personnel to devote the
utmost effort and skill to the advancement and betterment of the Company by
permitting them to participate in the ownership of the Company and thereby
permitting them to share in increases in the value of the Company which they
will help to produce.
The Plan is administered by the board of directors or a committee
appointed from time to time by the board of directors. Under the Plan, the
board or duly appointed committee may grant stock options, which may be
incentive stock options ("ISOs") as defined in the Internal Revenue Code (the
"Code"), or options which do not qualify as ISOs, to directors and employees of
the Company who, in the opinion of the board or committee, are expected to
contribute materially to the Company's success in the future. All employees of
the Company are eligible to participate in the Plan. A maximum of 800,000
shares, subject to adjustment for certain events of dilution, are available for
grant under the Plan, provided, however, that in no event may the aggregate
fair market value of shares of the Company's common stock with respect to which
ISO is exercisable for the first time in any calendar year exceed $100,000.
The exercise price of options granted under the Plan may not be less
than 100% of the fair market value of the Company common stock on the date the
option is granted in the case of ISOs (110% of the fair market value in the
case of 10% stockholders). All ISOs granted under the Plan shall expire not
later than ten years from the date of grant (5 years in the case of ISOs
granted to 10% stockholders), and all nonqualified options shall expire at such
date as the board or a duly appointed committee shall determine. The option
price may be paid by cash or, at the discretion of the board or a duly
appointed committee, by delivery of common stock or options already owned by
the optionee (valued at their fair market value at the date of exercise), or a
combination thereof.
The aggregate number of shares of common stock with respect to which
options may be granted under the Plan, the number of shares thereof covered by
each outstanding option, and the purchase price per share thereof in each such
option, shall be adjusted for any increase or decrease in the number of issued
shares of common stock of the Company resulting from a recapitalization,
reorganization, merger, consolidation, exchange of shares, stock dividend,
stock split, reverse stock split, or other subdivision or consolidation of
shares or other increase or decrease in such shares effected without receipt by
the Company of consideration approved by the board of directors of the Company
(an "Event of Dilution"), in amounts to prevent substantial dilution or
enlargement of rights granted to or available for eligible employees. In the
case of an ISO, the ratio of the option price to the fair market value of the
stock subject to the option immediately after the change must not be more
favorable to the optionee on a share by share comparison than the ratio of the
old option price to the fair market value of the stock subject to the option
immediately before such transaction. All such adjustments shall be made by the
board or a duly appointed committee, whose good faith determination shall be
binding absent manifest error.
The board of directors of the Company may from time to time alter,
amend, suspend, or discontinue the Plan with respect to any shares of common
stock as to which options have not been granted. However, no such alteration or
amendment (unless approved by the stockholders) shall (a) increase (except in
the case of an Event of Dilution) the maximum number of shares for which
options may be granted under the Plan either in the aggregate or to any
eligible employee; (b) reduce (except in the case of an Event of Dilution) the
minimum option prices which may be established under the Plan; (c) extend the
period or periods during which options may be granted or exercised; (d)
materially modify the requirements as to eligibility for participation in the
Plan;
30
<PAGE> 31
(e) change the provisions of the preceding paragraph relating to Events of
Dilution; or (f) materially increase the benefits accruing to the eligible
employees under the Plan.
On June 6, 1998 the shareholders of the Company approved an amendment
to the 1993 Employee Incentive Plan increasing the number of authorized shares
that may be granted under the Plan from 800,000 to 1,600,000 shares. An
important element of the Company's compensation program is the award of stock
options. The increase in the total number of shares that may be granted under
the Plan was made to ensure that select employees maintain a sufficient equity
interest in the Company as stock is issued in connection with the acquisition
of additional oil and gas interests of the Company and for other reasons. All
other provisions of the Plan remain unchanged.
31
<PAGE> 32
- -------------------------------------------------------------------------------
ITEM 11. SECURITY OWNERSHIP OF
CERTAIN PRINCIPAL STOCKHOLDERS AND MANAGEMENT
- -------------------------------------------------------------------------------
The following table sets forth information with respect to the
ownership of shares of Common Stock and Preferred Stock as of March 31, 1999,
by (i) each director and executive officer of the Company, (ii) all executive
officers and directors of the Company as a group and (iii) each person known by
the Company to own beneficially more than 5% of the outstanding shares of
Common Stock or Preferred Stock. To the Company's knowledge, the persons
indicated below have sole voting and investment power with respect to the
shares indicated as owned by them, except as otherwise stated. The address for
each director and beneficial owner of more than 5% of the outstanding shares of
Common Stock is 700 Louisiana, Suite 3700, Houston, Texas 77002, unless
otherwise indicated.
<TABLE>
<CAPTION>
COMMON STOCK(1) PREFERRED STOCK(1)
-------------------------------- ------------------------
PERCENT OF PERCENT OF
NAME OF BENEFICIAL OWNER AMOUNT CLASS AMOUNT CLASS
------------------------ -------------- ---------- --------- ----------
<S> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS:
Thomas D. Barrow............... 8,666,666.658(2) 27.9% 33,333.33 33.3%
Tim J. Goff.................... 21,944,858.658(3) 70.2% 33,333.33(4) 33.3%
Gary R. Petersen (5)........... -- -- --
D. Martin Phillips (5)......... -- -- --
B. Carl Price.................. 1,740,000(6) 7.6% -- --
Kimberly G. Seekely............ -- -- --
Mary Elizabeth Vanderhider..... -- -- --
Common Stock owned by
All directors and executive
Officers as a group (7 persons)... 32,351,525.306 79.77% 66,666.66 66.7%
5% STOCKHOLDERS:
Energy Capital Investments
Co. PLC(7).................. 2,269,886 10.2% -- --
EnCap Equity 1994, L.P.(7)..... 2,424,973 10.9% -- --
TJG Investments, Inc........... 1,255,000(8) 5.6% -- --
Bargo Energy Company........... 7,078,333(9) 31.7% -- --
James E. Sowell................ 8,666,666.684(10) 27.9% 33,333.33 33.33%
Bargo Operating Company,
Inc.......................... 5,204,859(11) 22.8% 1,000(12) 1%
Bargo Energy Resources,
Ltd........................... 4,944,859(13) 21.9% -- --
Don Wm. Reynolds............... 753,362 3.4%(14) -- --
</TABLE>
- -------------------------
(1) As of March 31, 1999 there were 22,357,786 shares of Common Stock and
100,000 shares of Preferred Stock outstanding. Each share of Preferred
Stock may be converted into 260 shares of Common Stock. All shares of
Preferred Stock are convertible within 60 days from March 31, 1999.
32
<PAGE> 33
(2) All of the shares of Common Stock beneficially owned by Mr. Barrow
represent shares that may be acquired within 60 days from March 31,
1999 upon the conversion of the Preferred Stock owned by Mr. Barrow.
Mr. Barrow's address is P.O. Box 2588, Longview, Texas 75606.
(3) Mr. Goff shares voting and investment power with TJG Investments, Inc.
("TJG") with respect to 1,255,000 shares, with Bargo Energy Company
("Bargo Energy") with respect to 7,078,333 shares, and jointly with
Bargo Operating Company, Inc. ("Bargo Operating") and Bargo Energy
Resources, Ltd. ("Resources") with respect to 4,694,859 shares. In
addition Mr. Goff shares voting and investment power jointly with
Bargo Operating and Resources with respect to a warrant to purchase
250,000 shares of Common Stock which may be exercised within 60 days
from March 31, 1999. The remaining shares represent shares which may
be acquired upon conversion of outstanding Preferred Stock within 60
days from March 31, 1999. Mr. Goff has sole voting and investment
power with respect to 8,406,666.67 shares of Common Stock which may be
acquired upon conversion of Preferred Stock and shares voting and
investment power with Bargo Operating with respect to 260,000 shares
of Common Stock which may be acquired upon conversion of Preferred
Stock.
(4) Includes 1,000 shares of Preferred Stock for which Mr. Goff shares
voting and investment power with Bargo Operating and 32,333.33 shares
of Preferred Stock over which Mr. Goff has sole voting and investment
power.
(5) According to a Schedule 13D/A filed by Energy Capital Investment Co.
PLC ("Energy PLC"), EnCap Equity 1994, L.P., ("EnCap") and certain of
their affiliates on September 4, 1998, Messrs. Petersen and Philips
are not deemed to have beneficial ownership of any of the shares of
Common Stock held by Energy PLC and EnCap.
(6) Includes 550,000 shares of Common Stock that may be acquired pursuant
to employee stock options which may be exercised immediately. Also
includes 63,131 shares of Common Stock, the maximum number of shares
which Mr. Price has the right to acquire during the 60 days following
March 31, 1999 under an employment agreement with Future. Under this
agreement, Mr. Price may elect to receive all or a portion of his
salary in shares of Common Stock at a price per share of $0.33 per
share until December 31, 1999. From January 1, 1999 and until the
employment agreement terminates, the purchase price per share is the
average midpoint between the bid and asked price of the Common Stock
on the OTC Bulletin Board for the last five days of the calendar year
prior to the year the compensation is earned. The 63,131 shares
included in the foregoing table represents the maximum number of
shares which Mr. Price could acquire during the 60-day period
following March 31, 1999 if he converted all of his salary into shares
of Common Stock.
(7) The address of Energy Capital Investments Co. PLC and EnCap Equity
1994, L.P. is 1100 Louisiana, Suite 3150, Houston, Texas 77002. EnCap
Investments L.C. is the general partner of EnCap Equity 1994 L.P. and
serves as an investment advisor to Energy Capital Investment Co. P.L.C.
EnCap Investments L.C. disclaims any beneficial ownership of Energy
Capital Investments Co. P.L.C.'s and EnCap Equity 1994 L.P.'s shares.
(8) TJG shares voting and investment power with respect to these shares
with Tim J. Goff.
(9) Bargo Energy shares voting and investment power with respect to these
shares with Tim J. Goff.
(10) All of the shares of Common Stock beneficially owned by Mr. Sowell
represent shares that may be acquired within 60 days from March 31,
1999 upon the conversion of the Preferred Stock owned by Mr. Sowell.
Mr. Sowell's address is 3131 McKinney Avenue, Suite 200, Dallas, Texas
75204.
(11) Bargo Operating shares voting and investment power with respect to
4,694,859 shares jointly with Tim J. Goff and Resources. In addition,
Bargo Operating shares voting and investment power jointly with Tim J.
Goff and Resources with respect to a warrant to purchase 250,000
shares of Common Stock which may be exercised within 60 days from
March 31, 1999. Bargo Operating also shares voting and investment
power with Tim J. Goff with respect to 260,000 shares of Common Stock
which may be acquired upon conversion of Preferred Stock within 60
days from March 31, 1999.
(12) Bargo Operating shares voting and investment power with respect to
these shares with Tim J. Goff.
33
<PAGE> 34
(13) Resources shares voting and investment power jointly with Tim J. Goff
and Bargo Operating with respect to 4,694,859 shares and a warrant to
purchase 250,000 shares of Common Stock which may be exercised within
60 days from March 31, 1999.
(14) Mr. Reynolds is party to an Amended and Restated Stockholders
Agreement between the Company, Resources, Energy PLC, EnCap and
certain other stockholders, by virtue of which Mr. Reynolds may be
deemed to beneficially own over 5% of the outstanding Common Stock.
Mr. Reynolds disclaims such beneficial ownership.
- -------------------------------------------------------------------------------
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------------------------------------------------------------------------------
In November 1997, the Company entered into a five-year agreement with
Robert Price for rental of certain property used as a storage yard. The minimum
annual compensation anticipated by the agreement is $15,600. A portion of the
compensation may be paid in stock of the Company based on the market price of
the stock, as specified in the agreement. For the year ended December 31, 1998,
the Company issued to Robert Price 37,143 common shares of the Company pursuant
to the agreement.
Price Oil & Gas Co., a company owned by B. Carl Price, provides
certain consulting services to the Company. For the year ended December 31,
1998, Price Oil & Gas Co. was paid $28,500 for such services.
Pursuant to the August Transaction, Future renewed and extended
indebtedness owed to the EnCap Entities, principal shareholders of the Company,
in the amount of $7.3 million. In connection with the renewal and extension,
EnCap and ECIC were issued 1,373,097 and 1,471,782 shares of Common Stock,
respectively. The indebtedness was paid in full in connection with the December
Transaction. Gary R. Petersen and D. Martin Phillips are principals of EnCap
Investments L.C. EnCap Investments L.C. is the general partner of EnCap and
serves as an investment advisor to ECIC.
On October 15, 1998, the Company acquired certain interests, effective
September 1, 1998, in oil and gas properties located in Texas from Resources, a
principal shareholder of the Company. The properties were on the same date
acquired by Resources from Chevron, U.S.A. Inc. for $6.1 million. In
consideration for assigning all of its rights and interests in these properties
to the Company per the purchase and sale agreement, Resources received a fee of
$166,000 which approximated the net revenue for the month of September 1998.
On October 15, 1998, the Company issued $4 million in subordinated
promissory notes to Bargo Energy and TJG in connection with the acquisition of
certain oil and gas properties from Bargo Energy and TJG.
On October 15, 1998, the Company acquired certain oil and gas
properties from Pledger Partners, Ltd. ("Pledger") for $1 million. Pledger is a
Texas limited partnership owned by Bargo Energy and certain EnCap entities.
On November 19, 1998, the Company acquired interests in oil and gas
properties located in Texas and Louisiana from Resources, a principal
shareholder of the Company, for a cash purchase price of $4,354,000. The
properties were on the same date acquired by Resources from Cody Energy, Inc.,
a Delaware corporation ("Cody Energy"), and Cody Texas, L.P. a Texas limited
partnership ("Cody Texas"), for a purchase price of $4,354,000.
34
<PAGE> 35
On December 14, 1998, the Company acquired additional interests in
Texas for a cash purchase price of $3,526,000. The Company acquired the
additional properties from Resources, which properties were on the same date
acquired by Resources from Cody Energy and Cody Texas.
On December 15, 1998 the Company acquired substantially all of the
assets and liabilities, including the going concern value, of Resources, a
principal shareholder of the Company, for $2 million and 100,000 shares of
Preferred Stock. In addition, Future issued 8,333,333 shares of its common
stock to Bargo Energy and TJG in exchange for the cancellation of outstanding
debt aggregating $4 million associated with the October transaction. Bargo
Energy and TJG are affiliates of Resources. Tim J. Goff is the sole shareholder
of TJG. Mr. Goff and Thomas D. Barrow, a director of the Company, are partners
of Bargo Energy.
As of December 31, 1998, the Company owes Resources $521,162 and Bargo
Energy $53,040 for costs incurred on its behalf.
35
<PAGE> 36
- -------------------------------------------------------------------------------
ITEM 13. EXHIBITS REPORTS ON FORM 8-K
- -------------------------------------------------------------------------------
(a)(1) Financial Statements. The following statements are included in this
report:
<TABLE>
<CAPTION>
TITLE OF DOCUMENT PAGE
<S> <C>
Independent Auditor's Report for the Year Ended December 31, 1998 F-1
Independent Auditor's Report for the Years Ended December 31, 1997 and 1996 F-2
Consolidated Balance Sheet as of December 31, 1998 and 1997 F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1998, 1997 and 1996 F-4
Consolidated Statement of Changes in Stockholders' Equity for the
Period from January 1, 1996, through December 31, 1998 F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996 F-6
Notes to Consolidated Financial Statements F-7
</TABLE>
(a)(2) Exhibits. The following exhibits are included as part of this report.
(See exhibit index in separate exhibit volume):
EXHIBIT LIST
<TABLE>
<CAPTION>
Exhibit Title of Document Location
Number ----------------- --------
- ------
<S> <C> <C>
Item 2 Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession
- --------------- ------------------------------------------------------------------------------------------------------
2.1 Purchase and Sale Agreement dated May 1, 1998 by and among Incorporated by
the Company, Energy Capital Investment Company PLC, EnCap Reference(1)
Equity 1994 Limited Partnership and NCI Enterprises, Inc.
2.2 Agreement and Plan of Merger dated August 14, 1998 by and Incorporated by
among the Company, Bargo Energy Resources, Ltd., SCL-CAL Reference(1)
Company and Future-Cal-Tex Corporation
2.3 Purchase and Sale Agreement between Bargo Energy Company Incorporated by
and TJG Investment, Inc., as Sellers, and the Company, as Reference(2)
Buyer, dated October 15, 1998
2.4 Purchase and Sale Agreement between Pledger Partners, Ltd., Incorporated by
as Seller and the Company, as Buyer, dated October 15, 1998 Reference(2)
</TABLE>
36
<PAGE> 37
<TABLE>
<CAPTION>
Exhibit Title of Document Location
Number ----------------- --------
- ------
<S> <C> <C>
2.5 Purchase and Sale Agreement between NCI Reserves, Ltd., Incorporated by
Southwest Sulfur & Oil, Inc., Wayne Newkumet, and Castello Reference(2)
Enterprises, Inc., as Sellers, and the Company, as Buyer,
dated October 15, 1998
2.6 Purchase and Sale Agreement between NCI Properties, Ltd., Incorporated by
as Seller, and the Company, as Buyer, dated October 15, 1998 Reference(2)
2.7 Purchase and Sale Agreement between Bargo Energy Resources, Incorporated by
Ltd., as Seller, and the Company, as Buyer, dated October Reference(2)
15, 1998
2.8 Purchase and Sale Agreement between Bargo Energy Resources, Incorporated by
Ltd., as Seller, and the Company, as Buyer, dated November Reference(3)
13, 1998
2.9 Asset Purchase Agreement and Plan of Reorganization dated Incorporated by
December 15, 1998 by and among the Company, Bargo Energy Reference(4)
Resources, Ltd., Bargo Energy Company and TJG Investments,
Inc
2.10 Purchase and Sale Agreement dated November 25, 1997, by and Incorporated by
among the Company, Energy Capital Investment Company PLC, Reference(6)
EnCap Equity 1994 Limited Partnership, and Gecko Booty 1994
I Limited Partnership
Item 3 Articles of Incorporation and Bylaws
- --------------- ------------------------------------------------------------------------------------------------------
3.11 Articles of Restatement of the Articles of Incorporation Incorporated by
Reference(5)
3.2 Bylaws Incorporated by
Reference(5)
Item 4 Instruments Defining the Rights of Security Holders, Including Indentures
- --------------- ------------------------------------------------------------------------------------------------------
4.1 Articles of Restatement of the Articles of Incorporation Incorporated by
Reference(5)
4.2 Bylaws Incorporated by
Reference(5)
4.3 Agreement dated August 14, 1998 by and among B. Carl Price, Incorporated by
Bargo Energy Resources, Ltd., Energy Capital Investment Reference(1)
Company PLC, and EnCap Equity 1994 Limited Partnership
4.4 Certificate of Designation of Convertible Preferred Stock, Incorporated by
Series A Reference(4)
</TABLE>
37
<PAGE> 38
<TABLE>
<CAPTION>
Exhibit Title of Document Location
Number ----------------- --------
- ------
<S> <C> <C>
Item 10 Material Contracts
- --------------- ------------------------------------------------------------------------------------------------------
10.1 Promissory Note dated November 25, 1997 from the Company to Incorporated by
Gecko booty 1994 I Limited Partnership Reference(6)
10.2 Promissory Note dated November 25, 1997, from the Company Incorporated by
to Energy Capital Investment Company, PLC Reference(6)
10.3 Amendment to Renewal Promissory Note dated May 1, 1998 by Incorporated by
the Company to Energy Capital Investment Company PLC dated Reference(1)
August 14, 1998
10.4 Renewal Promissory Note of the Company payable to Energy Incorporated by
Capital Investment Company PLC dated October 15, 1998 Reference(2)
10.5 Promissory Note dated November 25, 1997, from the Company Incorporated by
to EnCap Equity 1994 Limited Partnership Reference(6)
10.6 Amendment to Renewal Promissory Note dated May 1, 1998 by Incorporated by
the Company to EnCap Equity 1994 Limited Partnership dated Reference(1)
August 14, 1998
10.7 Renewal Promissory Note of the Company payable to EnCap Incorporated by
Equity 1994 Limited Partnership dated October 15, 1998 Reference(2)
10.8 Note Restructuring Agreement by and among the Company, Incorporated by
Energy Capital Investment Company PLC, EnCap Equity 1994 Reference(1)
Limited Partnership and Gecko Booty 1994 I Limited
Partnership dated August 14, 1998
10.9 Credit Agreement between the Company and Bank of America Incorporated by
National Trust and Savings Association dated August 14, 1998 Reference(1)
10.10 Amendment No. 1 to Credit Agreement between Bank of America Incorporated by
National Trust and Savings Association and the Company, Reference(3)
dated November 16, 1998
10.11 Amended and Restated Credit Agreement between the Company Incorporated by
and Bank of America National Trust and Savings Association Reference(4)
dated December 4, 1998
10.12 Amended and Restated Secured Promissory Note of the Company Incorporated by
payable to Bank of America National Trust and Savings Reference(3)
Association dated November 18, 1998
</TABLE>
38
<PAGE> 39
<TABLE>
<CAPTION>
Exhibit Title of Document Location
Number ----------------- --------
- ------
<S> <C> <C>
10.12 Master Subordination Agreement by and between Bank of Incorporated by
America National Trust and Savings Association and Energy Reference(1)
Capital Investment Company PLC and EnCap Equity 1994
Limited Partnership dated August 14, 1998
10.13 First Amendment to Master Subordination Agreement by and Incorporated by
among Bank of America National Trust and Savings Reference(2)
Association and Energy Capital Investment Company PLC,
EnCap Equity 1994 Limited Partnership, Bargo Energy
Company, and TJG Investments, Inc., dated October 15, 1998
10.14 Subordination Agreement by and among Bank of America Incorporated by
National Trust and Savings Association and Energy Capital Reference(2)
Investment Company PLC, EnCap Equity 1994 Limited
Partnership, Bargo Energy Company, and TJG Investments,
Inc., dated October 15, 1998
10.15 Intercreditor and Collateral Agency Agreement by and among Incorporated by
Energy Capital Investment Company PLC, EnCap Equity 1994 Reference(2)
Limited Partnership, Bargo Energy Company, and TJG
Investments, Inc., dated October 15, 1998
10.16 Promissory Note of the Company payable to Bargo Energy Incorporated by
Company in the principal amount of $3,397,600 dated October Reference(2)
15, 1998
10.17 Promissory Note of the Company payable to TJG Investments, Incorporated by
Inc. in the principal amount of $602,400 dated October 15, Reference(2)
1998
10.18 Security Agreement dated May 1, 1998 between the Company Incorporated by
and Energy Capital Investment Company PLC, EnCap Equity Reference(1)
1994 Limited Partnership, and Gecko Booty 1994 I Limited
Partnership
10.19 First Amendment to Security Agreement between Energy Incorporated by
Capital Investment Company PLC, EnCap Equity 1994 Limited Reference(2)
Partnership, Bargo Energy Company and TJG Investments,
Inc., as secured parties, and NCI-Shawnee Limited
Partnership, as debtor, dated October 15, 1998
10.20 First Amendment to Security Agreement between Energy Incorporated by
Capital Investment Company PLC, EnCap Equity 1994 Limited Reference(2)
Partnership, Bargo Energy Company and TJG Investments,
Inc., as secured parties, and Future Cal-Tex Corporation,
as debtor, dated October 15, 1998
</TABLE>
39
<PAGE> 40
<TABLE>
<CAPTION>
Exhibit Title of Document Location
Number ----------------- --------
- ------
<S> <C> <C>
10.21 Second Amendment to Security Agreement between Energy Incorporated by
Capital Investment Company PLC, EnCap Equity 1994 Limited Reference(2)
Partnership, Bargo Energy Company and TJG Investments,
Inc., as secured parties, and the Company, Future Energy
Corporation, Future Petroleum Corporation, Future
Acquisitions 1995, Ltd., and BMC Development No. 1 Limited
Partnership, as debtors, dated October 15, 1998
10.22 First Amendment to Security Agreement between Bank of Incorporated by
America National Trust and Savings Association, as lender, Reference(3)
and each of the Company, Future Energy Corporation, Future
Petroleum Corporation, Future CAL-TEX Corporation, BMC
Development No. 1 Limited Partnership, Future Acquisition
1995, Ltd., and NCI-Shawnee Limited Partnership, as
debtors, dated November 18, 1998
10.23 Guaranty dated April 30, 1998 by the Company in favor of Incorporated by
Energy Capital Investment Company PLC, EnCap Equity 1994 Reference(1)
Limited Partnership, and Gecko Booty 1994 I Limited
Partnership
10.24 Second Amendment to Guaranty between Energy Capital Incorporated by
Investment Company PLC, EnCap Equity 1994 Limited Reference(2)
Partnership, Bargo Energy Company and TJG Investments,
Inc., as sellers, and Future Energy Corporation, Future
Petroleum Corporation, BMC Development No. 1 Limited
Partnership, and Future Acquisition 1995, Ltd., as
guarantors, dated October 15, 1998
10.25 First Amendment to Guaranty between Energy Capital Incorporated by
Investment Company PLC, EnCap Equity 1994 Limited Reference(2)
Partnership, Bargo Energy Company and TJG Investments,
Inc., as sellers, and NCI-Shawnee Limited Partnership, as
guarantor, dated October 15, 1998
10.26 First Amendment to Guaranty between Energy Capital Incorporated by
Investment Company PLC, EnCap Equity 1994 Limited Reference(2)
Partnership, Bargo Energy Company and TJG Investments,
Inc., as sellers and Future Cal-Tex Corporation, as
guarantor, dated October 15, 1998
</TABLE>
40
<PAGE> 41
<TABLE>
<CAPTION>
Exhibit Title of Document Location
Number ----------------- --------
- ------
<S> <C> <C>
10.27 First Amendment to Guaranty between Bank of America Incorporated by
National Trust and Savings Association, as lender, and each Reference(3)
of the Company, Future Energy Corporation, Future Petroleum
Corporation, Future CAL-TEX Corporation, BMC Development
No. 1 Limited Partnership, Future Acquisition 1995, Ltd.,
and NCI-Shawnee Limited Partnership, as guarantors, dated
November 18, 1998
10.28 Pledge Agreement between Bank of America National Trust and Incorporated by
Savings Association and Bargo Energy Resources, Ltd. dated Reference(1)
August 14, 1998
10.29 Pledge Agreement between Bank of America National Trust and Incorporated by
Savings Association and Energy Capital Investment Company Reference(1)
PLC dated August 14, 1998
10.30 Pledge Agreement between Bank of America National Trust and Incorporated by
Savings Association and EnCap Equity 1994 Limited Reference(1)
Partnership dated August 14, 1998
10.31 Pledge Agreement between Bank of America National Trust and Incorporated by
Savings Association and B. Car Price dated August 14, 1998 Reference(1)
10.32 Pledge Agreement between Bank of America National Trust and Incorporated by
Savings Association and Don Wm. Reynolds dated August 14, Reference(1)
1998
10.33 Second Amendment to Pledge Agreement between Energy Capital Incorporated by
Investment Company PLC, EnCap Equity 1994 Limited Reference(2)
Partnership, Bargo Energy Company and TJG Investments,
Inc., as secured parties, and the Company, Future Energy
Corporation, and Future Petroleum Corporation, as debtors,
dated October 15, 1998
10.34 First Amendment to Pledge Agreement between Bank of America Incorporated by
National Trust and Savings Association, as secured party, Reference(3)
and each of the Company, Future Energy Corporation, Future
Petroleum Corporation, EnCap Equity 1994, Ltd., Energy
Capital Investment Company PLC, Bargo Energy Resources,
Ltd, B. Carl Price, and Don Wm. Reynolds, as debtors, dated
November 18, 1998
10.35 Pledge Agreement between Bank of America National Trust and Incorporated by
Savings Association and Bargo Energy Company dated December Reference(4)
15, 1998
</TABLE>
41
<PAGE> 42
<TABLE>
<CAPTION>
Exhibit Title of Document Location
Number ----------------- --------
- ------
<S> <C> <C>
10.36 Pledge Agreement between Bank of America National Trust and Incorporated by
Savings Association and TJG Investments, Inc. dated Reference(4)
December 15, 1998
10.37 Pledge Agreement between Bank of America National Trust and Incorporated by
Savings Association and James Sowell dated December 15, 1998 Reference(4)
10.38 Pledge Agreement between Bank of America National Trust and Incorporated by
Savings Association and Thomas D. Barrow dated December 15, Reference(4)
1998
10.39 Pledge Agreement between Bank of America National Trust and Incorporated by
Savings Association and Tim J. Goff dated December 15, 1998 Reference(4)
10.40 Pledge Agreement between Bank of America National Trust and Incorporated by
Savings Association and Bargo Operating Company, Inc. dated Reference(4)
December 15, 1998
10.41 Registration Rights Agreement among the Company and Bargo Incorporated by
Energy Resources, Ltd. dated August 14, 1998 Reference(1)
10.42 First Amendment to Registration Rights Agreement among the Incorporated by
Company, Bargo Energy Resources, Ltd., Bargo Energy Reference(4)
Company, TJG Investments, Inc. and certain other
shareholders dated December 15, 1998
10.43 Registration Rights Agreement dated November 25, 1997, Incorporated by
among the Company, Energy Capital Investment Company PLC, Reference(6)
and EnCap Equity 1994 Limited Partnership
10.44 Registration Rights Agreement among the Company, Energy Incorporated by
Capital Investment Company PLC and EnCap Equity 1994 Reference(1)
Limited Partnership dated August 14, 1998
10.45 First Amendment to Registration Rights Agreement among the Incorporated by
Company, Energy Capital Investment Company PLC and EnCap Reference(4)
Equity 1994 Limited Partnership dated December 15, 1998
10.46 Registration Rights Agreement among the Company, B. Carl Incorporated by
Price and certain other shareholders dated August 14, 1998 Reference(1)
10.47 First Amendment to Registration Rights Agreement among the Incorporated by
Company, B. Carl Price and certain other shareholders dated Reference(4)
December 15, 1998
</TABLE>
42
<PAGE> 43
<TABLE>
<CAPTION>
Exhibit Title of Document Location
Number ----------------- --------
- ------
<S> <C> <C>
10.48 Stock Purchase Warrant by the Company to Bargo Energy Incorporated by
Resources, Ltd. dated August 14, 1998 Reference(1)
10.49 Voting Agreement dated November 25, 1997 among B. Carl Incorporated by
Price, Don Wm. Reynolds, Energy Capital Investment Company Reference(6)
PLC, and EnCap Equity 1994 Limited Partnership
10.50 Shareholders' Agreement by and among the Company, Bargo Incorporated by
Energy Resources, Ltd., Energy Capital Investment Company Reference(1)
PLC, EnCap Equity 1994 Limited Partnership, B. Carl Price
and Don Wm. Reynolds dated August 14, 1998
10.51 Amended and Restated Shareholders' Agreement by and among Incorporated by
the Company, Bargo Energy Resources, Ltd., Energy Capital Reference(4)
Investment Company PLC, EnCap Equity 1994 Limited
Partnership, B. Carl Price, Don Wm. Reynolds, Bargo Energy
Company, TJG Investments, Inc. and certain other
shareholders dated December 15, 1998
10.52 Amended and Restated Employment Agreement of B. Carl Price Incorporated by
dated August 14, 1998 Reference(1)
10.53 Agreement between the Company and Don Wm. Reynolds dated as Incorporated by
of November 18, 1997 Reference(1)
10.54 Agreement between the Company and Robert Price dated as of Incorporated by
November 18, 1997 Reference(1)
10.55 1993 Employee Incentive Plan Incorporated by
Reference(5)
10.56 Renewal Promissory Note of the Company payable to Energy This Filing
Capital Investment Company PLC dated May 1, 1998
10.57 Renewal Promissory Note of the Company payable to EnCap This Filing
Equity 1994 Limited Partnership dated May 1, 1998
10.58 Security Agreement between Energy Capital Investment This Filing
Company PLC and EnCap Equity 1994 Limited Partnership,
as secured parties, and the Company, Future Energy
Corporation, Future Petroleum Corporation, Future Acquisitions
1995, Ltd., and BMC Development No. 1 Limited Partnership,
as debtors, dated November 25, 1997
10.59 First Amendment to Security Agreement between Energy Capital This Filing
Investment Company PLC and EnCap Equity 1994 Limited Partnership,
as secured parties, and the Company, Future Energy Corporation,
Future Petroleum Corporation, Future Acquisitions 1995, Ltd., and
BMC Development No. 1 Limited Partnership, as debtors, dated
May 1, 1998
10.60 Guaranty between Energy Capital Investment Company PLC, EnCap This Filing
Equity 1994 Limited Partnership, and Gecko Booty 1994 I Limited
Partnership, as sellers, and Future Energy Corporation, Future
Petroleum Corporation, BMC Development No. 1 Limited Partnership,
and Future Acquisition 1995, Ltd., as guarantors, dated November
25, 1997
10.61 Pledge Agreement between Energy Capital Investment Company PLC, This Filing
EnCap Equity 1994 Limited Partnership, and Gecko Booty 1994 I
Limited Partnership, as secured parties, and the Company, Future
Energy Corporation, and Future Petroleum Corporation, as debtors,
dated November 25, 1997
Item 21 Subsidiaries
- ----------------------------------------------------------------------------------------------------------------------
21.1 Schedule of Subsidiaries This Filing
27.1 Financial Data Schedule This Filing
</TABLE>
- ------------------------
(1) Incorporated herein by reference from the Company's Quarterly Report
on Form 10-QSB for the fiscal quarter ended June 30, 1998, filed with
the Securities Exchange and Commission on August 20, 1998. (file no.
000-08609)
(2) Incorporated herein by reference from the Company's Current report on
Form 8-K filed with the Securities and Exchange Commission on October
30, 1998. (file no. 000-08609)
43
<PAGE> 44
(3) Incorporated herein by reference from the Company's Current Report on
Form 8-K filed with the Securities and Exchange Commission on December
4, 1998. (file no. 000-08609)
(4) Incorporated herein by reference from the Company's Current Report on
Form 8-K filed with the Securities and Exchange Commission on December
30, 1998. (file no. 000-08609)
(5) Incorporated herein by reference from the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993, filed with the
Securities and Exchange Commission on May 20, 1994. (file no.
000-08609)
(6) Incorporated herein by reference from the Company's Current Report on
Form 8-K filed with the Securities and Exchange Commission on December
10, 1997.
(b) REPORTS ON FORM 8-K.
During the last quarter of the fiscal year ended December 31, 1998,
the Company filed reports on Form 8-K as follows:
<TABLE>
<CAPTION>
DATE OF EVENT REPORTED ITEM REPORTED
- ------------------------------------------------------ --------------------------------------------------
<S> <C>
December 17, 1998 Item 2. Acquisition or Disposition of Assets
Item 7. Financial Statements
December 15, 1998 Item 2. Acquisition or Disposition of Assets
Item 7. Financial Statements
November 19, 1998 Item 2. Acquisition or Disposition of Assets
Item 7. Financial Statements
October 30, 1998 Item 7. Financial Statements
October 15, 1998 Item 2. Acquisition or Disposition of Assets
Item 7. Financial Statements
</TABLE>
44
<PAGE> 45
- -------------------------------------------------------------------------------
SIGNATURES
- -------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, Registrant has duly caused this amendment to its annual report on form
10-KSB to be signed on its behalf by the undersigned; thereunto duly
authorized, this 19th day of April, 1999.
FUTURE PETROLEUM CORPORATION
(Registrant)
By /s/ Tim J. Goff
--------------------------------------
Tim J. Goff, President
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this form 10-KSB was signed by the following persons in the capacities
stated on the 19th day of April, 1999.
/s/ Tim J. Goff
- -----------------------------------------------------------------
Tim J. Goff, President and Director (principal executive officer)
/s/ B. Carl Price
- -----------------------------------------------------------------
B. Carl Price, Vice - President and Director
/s/ Mary Elizabeth Vanderhider
- -----------------------------------------------------------------
Mary Elizabeth Vanderhider, Corporate Secretary, Director
/s/ Thomas D. Barrow
- -----------------------------------------------------------------
Thomas D. Barrow, Director
/s/ D. Martin Phillips
- -----------------------------------------------------------------
D. Martin Phillips, Director
/s/ Gary R. Petersen
- -----------------------------------------------------------------
Gary R. Petersen, Director
/s/ Kimberly G. Seekely
- -----------------------------------------------------------------
Kimberly G. Seekely, Director (principal accounting officer)
DATE FILED: APRIL 19, 1999 SEC FILE NO. 0-8609
- ------------------------------------------------------------------------------
45
<PAGE> 46
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
Future Petroleum Corporation
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of cash flows and of changes in
stockholders' equity present fairly, in all material respects, the financial
position of Future Petroleum Corporation and its subsidiaries (the Company) at
December 31, 1998 and the results of their operations and their cash flows for
the year then ended, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
April 14, 1999
F-1
<PAGE> 47
<PAGE> 48
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Future Petroleum Corporation
Dallas, Texas
We have audited the accompanying consolidated balance sheet of Future Petroleum
Corporation as of December 31, 1997, and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for the years ended
December 31, 1997 and 1996. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Future Petroleum
Corporation as of December 31, 1997, and the results of its consolidated
operations and cash flows for the years ended December 31, 1997 and 1996, in
conformity with generally accepted accounting principles.
Hein+Associates LLP
March 20, 1998
Dallas, Texas
F-2
<PAGE> 49
FUTURE PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998 AND 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,241,000 $ 293,000
Trade accounts receivable 2,636,000 278,000
Due from affiliates 8,000
----------- -----------
Total current assets 3,885,000 571,000
----------- -----------
Property and equipment:
Oil and gas properties, full cost method 45,992,000 12,134,000
Other 648,000 44,000
----------- -----------
Total property and equipment 46,640,000 12,178,000
Less - accumulated depletion, depreciation
and amortization (1,566,000) (330,000)
----------- -----------
Net property and equipment 45,074,000 11,848,000
----------- -----------
Other assets:
Goodwill, net 1,984,000
Loan costs, net of accumulated amortization
of $25,000 965,000
Note receivable 93,000
Lease operating rights 96,000
Mining properties held for sale 40,000 40,000
Other 31,000
----------- -----------
Total other assets 2,989,000 260,000
----------- -----------
Total assets $51,948,000 $12,679,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 8,952,000 $ 504,000
Trade accounts parable 1,457,000 233,000
Accrued oil and gas proceeds payable 514,000 59,000
Accrued interest payable 430,000
Advance from related party 566,000 6,000
Deferred gain 40,000
----------- -----------
Long-term debt, less current potion 11,919,000 842,000
----------- -----------
Deferred tax liability 30,907,000 6,133,000
----------- -----------
Commitments and contingencies (Note 9) 1,011,000 1,298,000
----------- -----------
Stockholders' equity
Preferred stock, $.01 par value, 200,000 shares
authorized; 100,000 and 0 shares issued and
outstanding at December 31, 1998 and 1997,
respectively 1,000
Common stock, $.01 par value; 30,000,000 shares
authorized; 22,320,066 and 5,678,779 shares
issued and outstanding 223,000 57,000
Additional paid-in capital 6,543,000 4,413,000
Retained earnings (deficit) 1,344,000 (64,000)
----------- -----------
Total stockholders' equity 8,111,000 4,406,000
----------- -----------
Total liabilities and stockholders' equity $51,948,000 $12,679,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-3
<PAGE> 50
FUTURE PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Oil and gas sales $ 3,663,000 $ 596,000 $ 224,000
Well operation fees 16,000 176,000 154,000
------------ ------------ ------------
Total revenues 3,679,000 772,000 378,000
------------ ------------ ------------
Costs and expenses:
Lease operations and production taxes 1,826,000 419,000 187,000
General and administrative 783,000 154,000 120,000
Depletion, depreciation and amortization 1,316,000 191,000 99,000
------------ ------------ ------------
Total expenses 3,925,000 764,000 406,000
------------ ------------ ------------
Other income and expense:
Interest expense 1,238,000 69,000 6,000
Gain on sale of assets (102,000)
Interest income and other (19,000) (42,000) (83,000)
------------ ------------ ------------
Total other income and expense 1,219,000 27,000 (179,000)
------------ ------------ ------------
Income (loss) before income taxes and
extraordinary item (1,465,000) (19,000) 151,000
Income tax benefit (expense) 287,000 7,000 (32,000)
------------ ------------ ------------
Income (loss) before extraordinary item (1,178,000) (12,000) 119,000
Extraordinary gain on conversion of debt 2,586,000
------------ ------------ ------------
Net income (loss) $ 1,408,000 $ (12,000) $ 119,000
============ ============ ============
Net income (loss) per common share -
basic and diluted $ 0.14 $ -- $ .03
============ ============ ============
Weighted average common shares
outstanding 9,924,000 4,280,000 3,472,000
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-4
<PAGE> 51
FUTURE PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
PREFERRED STOCK COMMON STOCK PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS (DEFICIT) EQUITY
------ ------ ---------- -------- ---------- ----------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1995 -- $ -- 3,426,903 $ 35,000 $1,016,000 $ (171,000) $ 880,000
Shares issued for options exercised 59,876 15,000 15,000
Net income 119,000 119,000
------- ----- ---------- -------- ---------- ----------------- ----------
Balances, December 31, 1996 -- $ -- 3,486,779 35,000 1,031,000 (52,000) 1,014,000
Shares issued for oil and gas properties 1,980,000 20,000 3,349,000 3,369,000
Shares issued for options exercised 200,000 2,000 28,000 30,000
Shares issued for services 12,000 5,000 5,000
Net loss (12,000) (12,000)
------- ----- ---------- -------- ---------- ----------------- ----------
Balances, December 31, 1997 -- $ -- 5,678,779 57,000 4,413,000 (64,000) 4,406,000
Shares issued for oil and gas properties 100,000 1,000 5,163,192 52,000 21,000 74,000
Shares issued for fixed assets 2,414,776 24,000 593,000 617,000
Shares issued for retirement of debt 8,495,683 85,000 1,312,000 1,397,000
Shares for options exercised 110,000 1,000 57,000 58,000
Shares issued for payment of interest 267,400 2,000 66,000 68,000
Shares issued for services 190,236 2,000 81,000 83,000
Net income 1,408,000 1,408,000
------- ----- ---------- -------- ---------- ----------------- ----------
Balances, December 31, 1998 100,000 1,000 22,320,066 $223,000 $6,543,000 $ 1,344,000 $8,111,000
======= ===== ========== ======== ========== ================= ==========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-5
<PAGE> 52
FUTURE PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,408,000 $ (12,000) $ 119,000
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depletion, depreciation and amortization 1,316,000 191,000 99,000
Reserve for bad debts 53,000
Gain on sale of assets (102,000)
Extraordinary gain on conversion of debt (2,586,000)
Amortization of organizational costs 45,000
Stock issued for services 83,000 5,000
Stock issued to pay interest expense 68,000
Deferred income taxes (287,000) (7,000) 32,000
Change in working capital items:
Increase in accounts receivable (2,358,000) (31,000) (122,000)
Increase (decrease) in accounts payable
and accrued liabilities 2,101,000 (28,000) 98,000
Increase (decrease) in due to affiliates 560,000 (20,000) 41,000
Other 3,000 3,000
------------- ------------ -----------
Net cash provided by (used in) operating
activities 350,000 154,000 168,000
------------- ------------ -----------
Cash flows from investing activities:
Acquisition of oil and gas properties (29,857,000)
Acquisition of assets (2,000,000)
Acquisition of property and equipment (182,000) (166,000)
Decrease in notes receivable and deferred gain 53,000
Proceeds from sale of mining properties and
collection of associated notes receivable 12,000 244,000
Cash in partnerships upon acquisition 186,000
Decrease in lease operating rights 96,000
Other 16,000 27,000
------------- ------------ -----------
Net cash provided by (used in) investing
activities (31,692,000) 16,000 105,000
------------- ------------ -----------
Cash flows from financing activities:
Proceeds from issuance of debt 44,505,000 28,000
Repayment of debt (11,283,000) (21,000) (153,000)
Debt issue costs (990,000)
Proceeds from exercise of stock options 58,000 30,000
Change in overdrafts payable (34,000)
------------- ------------ -----------
Net cash provided by (used in) financing
activities 32,290,000 9,000 (159,000)
------------- ------------ -----------
Net increase (decrease) in cash 948,000 179,000 114,000
Cash and cash equivalents, beginning of year 293,000 114,000
------------- ------------ -----------
Cash and cash equivalents, end of year $ 1,241,000 $ 293,000 $ 114,000
============= ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-6
<PAGE> 53
FUTURE PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Supplemental Information:
Cash paid during the year for interest $742,000 $ 69,000 $ 6,000
-------- -------- --------
</TABLE>
Noncash investing and financing activities - In 1997, the Company acquired
interest in oil and gas partnerships and oil and gas properties for notes
payable of $6,600,000 and common stock valued at $3,369,000. In 1996, a related
party exercised options for 59,876 shares of common stock in exchange for the
payment of a liability in the amount of $15,000. In 1996, the Company's oil and
gas properties increased $190,000 based on its share of Partnership property
additions funded by the limited partner.
In 1998, the Company acquired interests in oil and gas properties and other
assets for notes payable of $4,000,000, and preferred and common stock valued
at $691,000.
In 1998, the Company redeemed notes payable in the amount of $5,585,000 in
exchange for 11,178,192 shares of common stock.
F-7
<PAGE> 54
FUTURE PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
- -------------------------------------------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
COMPANY OPERATIONS
Future Petroleum Corporation (the Company or FPC) is engaged primarily
in the acquisition, development and production of oil and gas reserves
and operation of oil and gas wells.
The accompanying financial statements include the accounts of the
Company and its wholly-owned subsidiaries, Alaska Eldorado Gold
Company (AEG), Future Cal-Tex Corporation (FCT), Future Energy
Corporation (FEC) and Future Petroleum Corporation of Texas (FPCT). In
addition, the financial statements include the accounts of BMC
Development No. 1, Ltd. (BMC), Future Acquisition 1995, Ltd. (FAQ) and
NCI Shawnee Limited Partnership (NCI) (the Partnerships). As of
December 31, 1998 and 1997, FPC and its subsidiaries held 100% of the
ownership interests of the Partnerships (Note 4). Intercompany
accounts and transactions are eliminated in consolidation.
OIL AND GAS PROPERTIES
The Company uses the full-cost method of accounting for its oil and
gas properties. The Company's properties are all located in the
continental United States, primarily Texas, Louisiana, California and
Oklahoma and; therefore, its costs are capitalized in one cost center.
Under the full-cost method, all costs related to the acquisition,
exploration or development of oil and gas properties are capitalized
into the "full-cost pool". Such costs include those related to lease
acquisitions, drilling and equipping of productive and nonproductive
wells, delay rentals, geological and geophysical work and certain
internal costs directly associated with the acquisition, exploration
or development of oil and gas properties. Upon the sale or disposition
of oil and gas properties, no gain or loss is recognized, unless such
adjustments of the full-cost pool would significantly alter the
relationship between capitalized costs and proved reserves.
Under the full-cost method of accounting, a "full-cost ceiling test"
is required wherein net capitalized costs of oil and gas properties
cannot exceed the present value of estimated future net revenues from
proved oil and gas reserves, discounted at 10%, less any related
income tax effects.
F-8
<PAGE> 55
FUTURE PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
- -------------------------------------------------------------------------------
Depletion, depreciation and amortization of oil and gas properties is
computed using the unit-of-production method based on estimated proved
oil and gas reserves. Depletion, depreciation and amortization per
equivalent barrel of oil was approximately $4.23, $4.44 and $8.37 for
the years ended December 31, 1998, 1997 and 1996.
MINING PROPERTIES HELD FOR SALE
Mining properties held for sale are recorded at the lower of cost or
estimated net realizable value.
OTHER PROPERTY
Other property and equipment consists of office furniture, fixtures,
equipment and leasehold improvements, which are carried at cost.
Depreciation is provided using the straight-line method over estimated
useful lives ranging from three to 39 years. Gain or loss on
retirement or sale or other disposition of assets is included in
income in the period of disposition.
INCOME TAXES
The Company accounts for its income taxes in accordance with Statement
of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes". SFAS 109 requires that deferred income tax be recorded
for the temporary differences between the tax and financial statement
bases of assets and liabilities and adjusted when new tax rates are
enacted.
NET INCOME (LOSS) PER COMMON SHARE
Net income or loss per common share is based on the weighted average
number of common shares outstanding. The Company's common stock
equivalents, which consisted of stock options and warrants, were
antidilutive in 1998, 1997 and 1996.
CASH EQUIVALENTS
The Company considers cash and unrestricted interest-bearing deposits
with original maturities of three months or less to be cash
equivalents.
USE OF ESTIMATES AND CERTAIN SIGNIFICANT ESTIMATES
The preparation of the Company's financial statements in conformity
with generally accepted accounting principles requires the Company's
management to make estimates and assumptions that affect the amounts
reported in these financial statements and accompanying notes. Actual
results could differ from those estimates. Significant assumptions are
required in the valuation of proved oil and gas reserves which, as
described above, may affect the amounts at which oil and gas
properties are recorded. It is at least reasonably possible those
estimates could be revised in the near term and those revisions could
be material.
STOCK-BASED COMPENSATION
In 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation", which requires recognition of the value of
F-9
<PAGE> 56
FUTURE PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
- -------------------------------------------------------------------------------
stock options and warrants granted based on an option pricing model.
However, as permitted by SFAS No. 123, the Company continues to
account for stock options and warrants granted to directors and
employees pursuant to APB Opinion No. 25, "Accounting for Stock Issued
to Employees", and related interpretations.
GOODWILL
The excess of the Company's cost over its underlying net assets is
being amortized using the straight-line method over the estimated
remaining life of the assets over a period not to exceed 10 years.
Such amortization is included in depreciation, depletion and
amortization.
The Company periodically evaluates the propriety of the carrying
amount of goodwill, as well as the amortization period, to determine
whether current events or circumstances warrant adjustments to the
carrying value and/or revised estimates of useful lives. At this time,
the Company believes no such impairment has occurred and no reduction
in useful lives is warranted.
CONCENTRATION OF BUSINESS
The Company's business is concentrated in the sale of petroleum-based
products. Market conditions of the oil and gas industry, particularly
the price of oil and gas, influence the results and level of the
Company's business.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The reported amounts of the Company's financial instruments (including
cash, receivables and payables) approximate fair value due to the
short maturities of these investments.
ENVIRONMENTAL MATTERS
Environmental expenditures that relate to current operations are
expensed or capitalized as appropriate. Expenditures that relate to an
existing condition caused by past operations, and which do not
contribute to current or future revenue generation, are expensed.
Liabilities are recorded when environmental assessments and/or
remedial efforts are probable, and the costs can be reasonably
estimated. Generally, the timing of the accruals coincides with the
completion of a feasibility study of the Company's commitment to a
formal plan of action.
RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform with the
current year presentation.
F-10
<PAGE> 57
FUTURE PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
- -------------------------------------------------------------------------------
2. RELATED-PARTY TRANSACTIONS
As of December 31, 1998, the Company owes Bargo Energy Resources (BER)
$521,000 and Bargo Energy Company (BEC) $53,000 for costs incurred on
its behalf. BER and BEC have a combined 33 2/3% common ownership
interest in the Company's outstanding stock. The Chairman of the Board
and Chief Executive Officer of the Company has a material interest in
both BER and BEC.
Included in well operation fees in 1997 and 1996 is $163,000 and
$134,000, respectively, earned from operating the wells of FAQ (Note
3) prior to the Company's acquisition of the other interests in FAQ.
At December 31, 1997, the Company owed a company owned by the
president of the Company approximately $27,000 for accrued consulting
fees and operating advances.
See Note 3 for additional related party disclosures.
3. INVESTMENTS IN PARTNERSHIP AND OIL AND GAS PROPERTY ACQUISITIONS
On May 1, 1998, the Company acquired the interests of NCI, a limited
partnership which owns interest in the Shawnee Townsite Unit located
in Pottawatomie County, Oklahoma. The general partnership interest was
acquired from NCI Enterprises, Inc. for 150,000 shares of FPC common
stock. The limited partnership interests were acquired from EnCap
Equity 1994 Limited Partnership and Energy Capital Investment Company
PLC for 50,000 shares of FPC common stock and the issuance of $660,000
in promissory notes (Note 4).
On August 14, 1998, the Company acquired an interest, effective August
1, 1998, in the South Coles Levee Field located in Kern County,
California, as a result of the merger of FCT with a subsidiary of BER
(the previous owner of this interest). At closing, FPC paid
approximately $5.8 million cash, issued 4,695,869 shares of FPC common
stock and a warrant to purchase 250,000 shares of FPC common stock, as
further described in Note 5.
On October 15, 1998, the Company, through NCI, acquired additional
interests, effective August 1, 1998, in the Shawnee Townsite Unit. The
interests were acquired from NCI 1990, Ltd., NCI Reserves, Ltd. and
three other parties in exchange for 116,676 shares of FPC common stock
and $375,000 cash, before purchase price adjustments.
F-11
<PAGE> 58
FUTURE PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
- -------------------------------------------------------------------------------
On October 15, 1998, the Company acquired certain interests, effective
August 1, 1998 in the Gin Unit located in Dawson County, Texas. The
interests were acquired from NCI Properties, Ltd. in exchange for
163,324 shares of FPC common stock and $493,000 cash, before purchase
price adjustments.
On October 15, 1998, FAQ acquired certain interests from Chevron,
U.S.A. Inc., effective September 1, 1998, in the Cross Creek Field
located in Harris County, Texas. In consideration for assigning to FAQ
all of its rights and interests in the Cross Creek Field purchase and
sale agreement with Chevron, BER received a fee of $166,000 which
approximated the net revenue for the month of September 1998. The
interests were acquired for a gross purchase price of $6,100,000 cash.
On October 15, 1998, FAQ acquired certain interests, effective
September 1, 1998, in the N.E. Limes Field located in Live Oak County,
Texas, the Bruce Roy Field located in Wharton County, Texas, the Candy
Field located in San Patricio County, Texas, the Sand Hills Field
located in Crane County, Texas, the Bluitt Field located in Roosevelt
County, New Mexico and the N. Yellow Creek Field located in Wayne and
Clarke Counties, Mississippi. These interests were acquired from BEC
and TJG Investments, Inc. (TJG) for a gross purchase price of
$3,000,000 cash and the issuance of $4,000,000 in subordinated debt, as
further described in Note 4. TJG is owned 100% by Tim J. Goff who is
the Chairman of the Board and Chief Executive Officer of FPC.
On October 15, 1998, FAQ acquired certain interests, effective
September 1, 1998, in the Buna Field located in Jasper County, Texas.
These interests were acquired from Pledger Partners, Ltd. (a Texas
limited partnership owned by BEC and certain EnCap entities) for
$1,000,000 cash, before purchase price adjustments.
On November 19, 1998 FAQ acquired certain interests, effective August
1, 1998, in the Foster Field located in Ector County, Texas, the San
Miguel Creek Field located in McMullen County, Texas, the Turtle Creek
Field located in Matagorda County, Texas, the Cheniere Field located
in Ouachita Parish, Louisiana, and the Leroy North Field located in
Vermilion Parish, Louisiana. BER Assigned to FAQ all of its rights and
interests in a purchase and sale agreement with Cody Energy, Inc. and
Cody Texas, L.P., to facilitate the closing of this transaction. The
interests were acquired for a gross purchase price of $4,354,000 cash.
On December 14, 1998, FAQ acquired certain interests, effective August
1, 1998, in the Bright Falcon Field located in Jackson County, Texas,
and the Giddings Field located in Fayette, Brazos and Burleson
Counties, Texas. BER assigned to FAQ all of its rights and interests in
a purchase and sale agreement with Cody Energy, Inc. and Cody Texas,
L.P., for the purchase of these interests. The interests were acquired
for a gross purchase price of $3,526,000 cash.
F-12
<PAGE> 59
FUTURE PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
- -------------------------------------------------------------------------------
On December 22, 1998, FCT acquired certain additional interests in the
South Coles Levee Field located in Kern County, California, effective
December 1, 1998. BER assigned to FCT all of its rights and interests
in a purchase and sale agreement with Chevron U.S.A., Inc. for the
purchase of these interests. The interests were acquired for a gross
purchase price of $3,500,000 cash.
In December 1995, the Company contributed a substantial portion of its
oil and gas properties to Future Acquisition 1995, Ltd. (FAQ), a
limited partnership in which the Company is the general partner. As a
result of entering into the partnership, the Company became the
operator of a majority of the partnership properties. The Company's
investment was recorded at book value and was allocated to oil and gas
properties and lease operating rights based on the relative fair
values of those assets. The limited partners contributed cash, which
was used to acquire and develop oil and gas properties. Through
October 1997, revenues and costs and expenses were generally allocated
either 15% and 85% or 3% and 97% to the Company and the limited
partners, respectively, depending on the property. Certain acquisition
and development costs were allocated 100% to the limited partners. The
Company accounted for its investment in FAQ as a pro rata
consolidation prior to the Company's acquisition of the remaining
interest in FAQ, which is described below.
The carrying value of the operating rights were amortized over the
estimated life of the partnership's oil and gas reserves. The
amortization was $10,000 and $22,000 in 1997 and 1996, respectively,
and is included in depletion, depreciation and amortization in the
accompanying statement of operations.
In November 1997, the Company purchased all the limited partners'
interest in FAQ, 100% of the BMC Development No. 1, Ltd. Partnership
(BMC) and all of the assets of a third partnership for a total of
$6,600,000 in notes payable and 1,575,000 shares of the Company's
common stock. The limited partners of FAQ were also the principal
owners of the interests in BMC and the other partnership. The
acquisition was accounted for as a purchase and the operations of the
acquired assets are included with those of the Company beginning in
November 1997. The stock was recorded at $3,131,000 based on the
estimated fair market values of the net assets acquired. The fair
market values were estimated primarily by reference to appraisals that
were obtained for the oil and gas properties. In connection with the
acquisition of FAQ, the Company acquired certain of the property
interests to which it had previously assigned value to the associated
lease operating rights. The estimated value of the loss of such
third-party operating rights was considered to be part of the
consideration paid for the net assets acquired. The amount of $267,000
was thus transferred from lease operating rights to oil and gas
properties in the recording of the acquisition.
F-13
<PAGE> 60
FUTURE PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
- -------------------------------------------------------------------------------
The following unaudited pro forma information is presented as if the
asset acquisitions and the interests in the partnerships had been
acquired at the beginning of the respective periods:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Revenues $13,848,000 $27,092,000
Net loss (income) (961,000) 5,759,000
Net loss (income) per share $ (0.07) $ 0.42
</TABLE>
4. LONG-TERM DEBT
ENCAP DEBT
The EnCap creditors (Encap) consist of EnCap Equity 1994 Limited
Partnership, Energy Capital Investment Company PLC and Gecko Booty
1994 I Limited Partnership.
For the period from January 1, 1998 through April 30, 1998, the EnCap
debt carried an interest rate of 10% per annum and required monthly
payments of interest only. In May 1998, under the promissory notes, in
addition to the monthly interest payments, monthly principal payments
in the amount of $68,750 were to begin and continue through maturity
on May 31, 2003.
On May 1, 1998, the promissory notes were amended and renewed in order
for the Company to borrow an additional $660,000 from EnCap to finance
the acquisition of NCI (Note 3). Additionally, the monthly
interest-only payments were extended through December 1998. Beginning
in January 1999, in addition to the monthly interest payments, monthly
principal payments in the amount of $75,625 were to begin and continue
through maturity on December 31, 2003.
On August 14, 1998, these promissory notes were amended, renewed and
subordinated to facilitate the Company's revolving line of credit
agreement with Bank of America (described below). The Company retired
$1,585,000 of the EnCap debt in conjunction with this restructuring
transaction, leaving a principal balance outstanding at August 14,
1998 of $5,500,000. Future interest payment dates were revised from
monthly to quarterly. Additionally, EnCap was issued 2,844,859 shares
of FPC common stock. On December 29, 1998, the Company paid EnCap in
full for the remaining principal of $5,500,000 and all accrued
interest through that date.
Cash paid to EnCap for interest during the year ended December 31,
1998 totaled $638,391.
F-14
<PAGE> 61
FUTURE PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
- -------------------------------------------------------------------------------
BEC/TJG DEBT
On October 15, 1998, the Company issued $4,000,000 in subordinated
promissory notes to BEC and TJG in connection with the acquisition of
certain oil and gas properties from BEC and TJG (Note 3). The debt
carried an interest rate of 10% per annum with a maturity date of
December 31, 2003.
On December 15, 1998, BEC and TJG canceled this indebtedness in return
for common stock of the Company; the Company issued 7,078,333 of FPC
common stock to BEC and 1,255,000 shares of FPC common stock to TJG.
Additionally, BEC conveyed certain assets, primarily consisting of
office furniture and equipment, to the Company. In connection with
this transaction, the Company realized an approximate $2.6 million
non-taxable extraordinary gain.
BANK OF AMERICA DEBT
On August 14, 1998, the Company entered into a Credit Agreement with
Bank of America providing for a $20 million revolving line of credit
(the Credit Agreement). This line of credit was amended and increased
to $27.5 million on November 15, 1998, and to $50 million on December
4, 1998. The line of credit is comprised of two tranches, Tranche A
and Tranche B.
At December 31, 1998, the Tranche A loan commitment amount was $38
million, of which $30.9 million had been borrowed. Tranche A is a
revolving line of credit, with interest payable quarterly and will
convert to a four-year term loan on December 4, 1999. The term loan
will then be payable in 16 equal quarterly principal installments. The
Company has a choice of two different interest rates under the Tranche
A loan, the Base Rate or the LIBOR Rate. The debt bears interest under
the Base Rate at the higher of the lender's "Reference Rate" or the
Federal Funds Rate plus .5%. The debt bears interest under the LIBOR
Rate at the LIBOR rate (reserve adjusted) plus 2%. The Company may
convert any portion of the outstanding debt from one interest rate
type to another in increments of $50,000 with a minimum transfer
amount of $250,000. The Base Rate of 7.75%, representing the lender's
Reference Rate, was in effect on the Tranche A loan at December 31,
1998.
At December 31, 1998, the Tranche B loan commitment amount was $12
million, of which $8.9 million had been borrowed. Tranche B is a
revolving line of credit, with interest payable quarterly, and matures
on June 5, 1999. The Company has a choice of two different interest
rates under the Tranche B loan, the Base Rate or the LIBOR Rate. The
debt bears interest under the Base Rate at the higher of the lender's
"Reference Rate" plus 2% (through April 4, 1999, and plus 4% thereafter
until maturity) or the Federal Funds Rate plus (2.5% through April 4,
1999, and plus 4.5% thereafter until maturity). The debt bears interest
under the LIBOR Rate at the LIBOR rate (reserve adjusted) plus 4%
(through April 4, 1999, and plus 6% thereafter) until maturity. The
Company may convert any portion of the outstanding debt from one
interest rate type to another in increments of $50,000 with a minimum
transfer amount of $250,000. The Base Rate of 9.75%, representing the
lender's Reference Rate plus 2%, was in effect on the Tranche B loan at
December 31, 1998. The Company expects to settle Tranche B through a
combination of cash from operations together with proceeds secured from
equity or debt issuances.
F-15
<PAGE> 62
FUTURE PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
- -------------------------------------------------------------------------------
The Credit Agreement is secured by the Company's interest in underlying
oil and gas properties and contains certain restrictive covenants, the
more significant of which require the Company to maintain (as defined
in the Credit Agreement) a quarterly minimum tangible net worth
requirement, a minimum quarterly debt to capitalization ratio, a
quarterly minimum current ratio, and a quarterly interest coverage
ratio. At December 31, 1998, the Company was in compliance with the
quarterly minimum current ratio and the quarterly interest coverage
ratio requirements, and had received a waiver from Bank of America on
the quarterly minimum tangible net worth and the minimum quarterly debt
capitalization ratio requirements with which it was not in compliance
at December 31, 1998.
Cash paid to Bank of America for commitments and other fees during the
year ended December 31, 1998 was approximately $775,000. At December
31, 1998, there were $430,000 of accrued interest and fees payable.
The carrying value of the debt is considered to represent fair value
at December 31, 1998.
Long-term debt maturing in each year subsequent to December 31, 1998
is as follows:
<TABLE>
<S> <C>
1999 $ 8,952,000
2000 7,732,000
2001 7,725,000
2002 7,725,000
2003 7,725,000
</TABLE>
5. STOCKHOLDERS' EQUITY
The Company has 200,000 shares of preferred stock authorized with a
par value of $.01. There were 100,000 and 0 shares issued and
outstanding as of December 31, 1998 and 1997, respectively. The
preferred shares may be issued in series with the relative rights and
preferences designated by the Company's Board of Directors.
F-16
<PAGE> 63
FUTURE PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
- -------------------------------------------------------------------------------
The Company has 30,000,000 shares of common stock authorized with a
par value of $.01. There were 22,320,066 shares issued and outstanding
as of December 31, 1998.
In 1998, the Company issued 100,000 preferred and 16,741,287 common
shares, in conjunction with various oil and gas property acquisitions
and the restructuring of certain indebtedness (as further described in
Notes 3 and 4).
On August 14, 1998, in conjunction with the acquisition of an interest
in the South Coles Levee Field (as further described in Note 3), the
Company issued warrants to purchase 250,000 shares of FPC common
stock. The warrants have an exercise price of $.43 per share and are
exercisable until August 14, 2003.
In connection with the purchase of certain oil and gas properties in
1995, the Company issued warrants to purchase 50,000 shares to the
seller as part of the transaction. Warrants to purchase 25,000 shares
were not exercised prior to expiration in December 1997; warrants to
purchase 12,500 shares have an exercise price of $2 per share and are
exercisable until December 2000; and warrants to purchase 12,500
shares have an exercise price of $3 per share and are exercisable
until December 2000.
6. STOCK BASED COMPENSATION
STOCK OPTION PLAN
The Company has a stock option plan, under which key employees may be
granted options to purchase the Company's common stock at prices equal
to market value at the date of grant (110% of market value for
stockholders with more that 10% of the outstanding stock). The options
may be exercised anytime within five years of the date of grant.
F-17
<PAGE> 64
FUTURE PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
- -------------------------------------------------------------------------------
The following is a summary of activity under this stock option plan
for the years ended December 31,1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
------------------------ ------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE
OF SHARES PRICE OF SHARES PRICE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Outstanding, beginning of year 387,844 $ 0.41 297,844 $ 0.20
Cancelled or expired
Granted 460,000 0.44 290,000 0.45
Exercised (110,000) 0.53 (200,000) 0.15
---------- ---------- ---------- ----------
Outstanding, end of year 737,844 $ 0.41 387,844 $ 0.41
========== ========== ========== ==========
</TABLE>
All the options outstanding at December 31, 1998 and 1997, and those
exercised during 1998 and 1997, were granted to officers or
stockholders of the Company. For all options granted during 1998 and
1997, the market price of the Company's common stock on the grant date
was approximately equal to the exercise price.
If not previously exercised, options outstanding at December 31, 1998
will expire as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER EXERCISE
OF SHARES PRICE
<S> <C> <C>
1999 77,844 $ 0.25
2001 20,000 0.44
2002 290,000 0.45
2008 350,000 0.41
----------
Total 737,844
==========
</TABLE>
F-18
<PAGE> 65
FUTURE PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
- -------------------------------------------------------------------------------
WARRANTS AND OTHER STOCK OPTIONS
The Company has also granted warrants and other options which are
summarized as follows for the years ended December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
------------------------ ------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE
OF SHARES PRICE OF SHARES PRICE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Outstanding, beginning of year 25,000 $ 2.50 337,500 $ 1.12
Granted to BER 250,000 0.43
Expired or cancelled (312,500) 1.00
---------- ---------- ---------- ----------
Outstanding, end of year 275,000 0.62 25,000 2.50
========== ========== ========== ==========
</TABLE>
All outstanding warrants and other options were exercisable at
December 31, 1998. If not previously exercised, all warrants and other
options outstanding at December 31, 1998 will expire by the year 2008.
PRO FORMA STOCK-BASED COMPENSATION DISCLOSURES
As described in Note 1, the Company applies APB Opinion No. 25 and
related interpretations in accounting for its stock options.
Accordingly, no compensation cost has been recognized for grants of
options to employees since the exercise prices were not lower than the
market prices of the Company's common stock on the measurement date.
Had compensation been determined based on the estimated fair value at
the measurement dates for awards under those plans consistent with the
method prescribed by SFAS No. 123, the Company's 1998 and 1997 net
income (loss) and earnings (loss) per share would have been changed to
the pro forma amounts indicated below.
<TABLE>
<CAPTION>
1998 1997
--------- ----------
<S> <C> <C>
Net income (loss) applicable to common
stockholders:
As reported $1,408,000 $ (12,000)
Pro forma 1,320,000 (39,000)
Net income (loss) per share of common stock:
As reported $ .14 $ --
Pro forma .13 (0.01)
</TABLE>
F-19
<PAGE> 66
FUTURE PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
- -------------------------------------------------------------------------------
The estimated fair value of each employee option and warrant granted
in 1998 and 1997 was estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
<S> <C> <C>
Expected volatility 28% to 68% 64% to 102%
Risk-free interest rate 6.57% 6.13% to 6.50%
Expected dividends -- --
Expected terms (in years) 9 5
</TABLE>
7. INCOME TAXES
The Company's provision (benefit) for income taxes was comprised of
the following for the years ended December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
--------- ---------- ----------
<S> <C> <C> <C>
Current $ -- $ -- $ --
Deferred (287,000) (7,000) 32,000
--------- ---------- ----------
$(287,000) $ (7,000) $ 32,000
========= ========== ==========
</TABLE>
The primary reasons for the difference between tax expense (benefit) at
the statutory federal income tax rate and the Company's provision
(benefit) for income taxes were:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Theoretical tax at 34% $ (498,000) $ (7,000) $ 51,000
Unbenefited loss 193,000 -- --
Other 18,000 -- (19,000)
---------- ---------- ----------
$ (287,000) $ (7,000) $ 32,000
========== ========== ==========
</TABLE>
F-20
<PAGE> 67
FUTURE PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
- -------------------------------------------------------------------------------
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities as of December 31,
1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Oil and gas properties $1,536,000 $1,518,000
Net operating loss and other (525,000) (220,000)
----------- ----------
Net deferred tax liability $1,011,000 $1,298,000
========== ==========
</TABLE>
At December 31, 1998, the Company had approximately $2.4 million of
net operating loss carryforwards that are subject to substantial
limitations under Section 382 of the Internal Revenue Code and expire
between 2006 and 2008. A valuation allowance has been provided to the
extent that the Company believes the net operating losses will expire
unutilized.
8. ENVIRONMENTAL MATTERS
Being engaged in oil and gas development, the Company may become
subject to certain liabilities as they relate to environmental
clean-up of well sites or other restoration procedures as they relate
to the drilling of oil and gas wells and the operation thereof. In the
Company's acquisition of existing or previously drilled well bores,
the Company may not be aware of what environmental safeguards were
taken at the time such wells were drilled or during the time that such
wells were operated. Should it be determined that a liability exists
with respect to any environmental clean-up or restoration, the
liability to cure such a violation would most likely fall upon the
Company. No claim has been made nor has a claim been asserted, nor is
the Company aware of the existence of any liability which the Company
may have, as it relates to any environmental clean-up, restoration or
the violation of any rules or regulations relating thereto.
9. COMMITMENTS
The Company has an operating lease for 14,885 square feet of office
space which expires on August 31, 2002. Under the terms of the lease
agreement, the Company is liable for fixed, monthly rent payments. The
Company incurred office rent expense of $221,000 and $12,000 for the
years ended December 31, 1998 and 1997, respectively. Minimum future
noncancelable lease payments for the years ended December 31, are as
follows:
F-21
<PAGE> 68
FUTURE PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
1999 $240,000
2000 240,000
2001 240,000
2002 160,000
</TABLE>
In November 1997, the Company entered into a five-year agreement with a
former director for rental of certain property used as a storage yard.
The minimum annual compensation anticipated by the agreement is
$15,600. A portion of the compensation may be paid in stock of the
Company based on the market price of the stock, as specified in the
agreement. For the years ended December 31, 1998 and 1997, the Company
issued 37,143 and 4,478, respectively, of common shares of the Company
pursuant to the agreement.
In November 1997 the Company entered into a five-year agreement with a
former director for geological consulting services. The minimum annual
compensation anticipated by the agreement is $18,000. A portion of the
compensation may be paid in stock of the Company based on the market
price of the stock as specified in the agreement. For the years ended
December 31, 1998 and 1997, the Company issued 42,857 and 5,166,
respectively, of common shares of the Company pursuant to the
agreement.
On August 14, 1998, the Company entered into an Amended and Restated
Executive Employment Agreement with B. Carl Price. The agreement is for
a three-year term and is automatically extended for an additional year
upon each anniversary of the effective date unless terminated. The
minimum annual compensation is $125,000 subject to adjustments and
bonuses. At the option of Mr. Price, a portion of the compensation may
be paid in stock of the Company, based on the market price of the
stock.
10. FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
Financial instruments that subject the Company to credit risk consist
principally of accounts and notes receivable. The receivables are
primarily from companies in extractive industries. No single
receivable is considered to be sufficiently material as to constitute
a concentration. The Company does not ordinarily require collateral
for accounts receivable, but in the case of receivables for joint
operations, the Company often has the ability to offset amounts due
against the participant's share of production from the related party.
The Company occasionally has cash deposits in excess of FDIC insurance
limits. The Company believes any risk of loss is remote.
Management estimates the market values of notes receivable and payable
based on expected cash flows and believes those market values
approximate carrying values at December 31, 1998, 1997 and 1996.
11. MAJOR CUSTOMERS
In 1998 and 1997, one purchaser accounted for approximately 24% and
10%, respectively, of the Company's revenues.
12. ASSET PURCHASE
On December 15, 1998, the Company entered into an Asset Purchase
Agreement with an effective date of November 1, 1998, with BER
and BEC.
BER sold, assigned and transferred to the Company certain assets,
consisting primarily of personnel, contracts to purchase oil and
F-22
<PAGE> 69
FUTURE PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
- -------------------------------------------------------------------------------
gas properties, financing contacts and all rights to the name "Bargo".
Certain owned or leased real property and personal property were
transferred along with the related lease agreements. All office
supplies, files, records, logs, customer and supplier lists, sales
records and similar type office items were transferred. Certain
receivables and liabilities relating to the period starting with the
effective date were also transferred. In return, the Company paid BER
$2 million cash and issued 100,000 shares of FPC preferred stock to
BER (each preferred share is convertible to 260 shares of FPC common
stock).
All of the shares of common and preferred stock issued pursuant to
this transaction as well as the shares of common stock issuable upon
conversion of the preferred stock are subject to pledge agreements
dated December 15, 1998 between the stockholders and Bank of America.
These agreements secure the Company's borrowing under its credit
agreement with Bank of America. If an event of default occurs under
the credit agreement, the bank will have the right to vote all of the
shares of FPC subject to these pledge agreements, and following
foreclosures on the shares, will have the right to sell the shares as
provided in the pledge agreements and applicable law.
13. NOTE RECEIVABLE
The Company had a note receivable at December 31, 1997 of $93,000, net
of an allowance of $53,000 relating to the sale of mining properties
in 1994. The note was deemed uncollectible in 1998 and was written off
by the Company.
14. FINANCIAL DATA FOR OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)
The following table sets forth certain information with respect to the
oil and gas producing activities of the Company:
F-23
<PAGE> 70
FUTURE PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Costs incurred in oil and gas producing activities:
Acquisition of proved properties $ 33,155,000 $ 11,265,000
Development costs 103,000 41,000
------------ ------------
Total $ 33,858,000 $ 11,306,000
============ ============
Net capitalized costs related to oil and gas
producing activities:
Proved properties $ 45,992,000 $ 12,134,000
Less - accumulated depletion, depreciation,
amortization and impairment (1,507,000) (288,000)
------------ ------------
Net oil and gas property costs $ 44,485,000 $ 11,846,000
============ ============
</TABLE>
15. OIL AND GAS RESERVE DATA (UNAUDITED)
The following table, based on information prepared by independent
petroleum engineers, summarizes changes in the estimates of the
Company's net interest in total proved reserves of crude oil and
condensate, natural gas liquids and natural gas, all of which are
domestic reserves:
<TABLE>
<CAPTION>
Oil &
Natural Gas
Liquids Gas
(BBLS) (MCFG)
------------ ------------
<S> <C> <C>
Balance, January 1, 1996 113,000 1,220,000
Purchase of minerals in place 5,000 --
Revisions of previous estimates (56,000) (767,000)
Abandonment of minerals (3,000) (181,000)
Production (7,000) (29,000)
------------ ------------
Balance, December 31, 1996 52,000 243,000
Purchase of minerals in place 2,071,000 6,176,000
Revisions of previous estimates 89,000 (220,000)
Production (33,000) (60,000)
------------ ------------
Balance, December 31, 1997 2,179,000 6,139,000
Purchase of minerals in place 3,245,000 55,840,000
Revisions of previous estimates (1,728,700) 8,583,500
Production (126,000) (1,109,000)
------------ ------------
Balance, December 31, 1998 3,569,300 69,453,500
============ ============
</TABLE>
F-24
<PAGE> 71
FUTURE PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
- -------------------------------------------------------------------------------
At December 31, 1998 and 1997, respectively, 2,963,300 and 1,306,000
barrels of oil and natural gas liquids and 50,066,000 and 4,355,000
mcf of natural gas were classified as proved developed.
Proved oil and gas reserves are the estimated quantities of crude oil,
condensate, natural gas liquids and natural gas which geological and
engineering data demonstrate with reasonable certainty to be
recoverable in future years from known reservoirs under existing
economic and operating conditions. Proved developed oil and gas
reserves are reserves that can be expected to be recovered through
existing wells with existing equipment and operating methods. The
above estimated net interests in proved reserves are based upon
subjective engineering judgments and may be affected by the
limitations inherent in such estimation. The process of estimating
reserves is subject to continual revision as additional information
becomes available as a result of drilling, testing, reservoir studies
and production history. There can be no assurance that such estimates
will not be materially revised in subsequent periods.
16. STANDARDIZED MEASURE OF CHANGES IN FUTURE NET REVENUES (UNAUDITED)
The standardized measure of discounted future net cash flows relating
to proved oil and gas reserves is set forth below. The assumptions used
to compute the standardized measure are those prescribed by the
Financial Accounting Standards Board and as such, do not necessarily
reflect the Company's expectations of actual revenues to be derived
from those reserves nor their present worth. The limitations inherent
in the reserve quantity estimation process are equally applicable to
the standardized measure computations since these estimates are the
basis for the valuation process.
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ----------
<S> <C> <C> <C>
Future cash inflows $185,660,000 $ 50,183,000 $ 2,038,000
Future production costs (75,262,000) (19,139,000) (1,022,000)
Future development costs (12,814,000) (3,122,000)
Future income tax expense (22,077,000) (7,408,000) (48,000)
------------ ------------ -----------
Future net cash flows 75,507,000 20,514,000 968,000
10% annual discount for estimated
timing of cash flows (33,978,000) (9,231,000) (308,000
------------ ------------ -----------
Standardized measure of discounted
future net cash flows $ 41,529,000 $ 11,283,000 $ 660,000
============ ============ ===========
</TABLE>
F-25
<PAGE> 72
FUTURE PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
- -------------------------------------------------------------------------------
Future net cash flows were computed using year-end prices and costs,
and year-end statutory tax rates (adjusted for permanent differences)
that relate to existing proved oil and gas reserves at year-end. The
following are the principal sources of change in the standardized
measure of discounted future net cash flows:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ -----------
<S> <C> <C> <C>
Sale of oil and gas produced, net of
production costs $(1,697,000) $ (177,000) $ (37,000)
Purchase of minerals in place 43,464,000 14,525,000 70,000
Abandonment of minerals (82,000)
Net changes in prices and production costs (4,974,000) (230,000) 450,000
Revisions and other 393,000 487,000 (1,023,000)
Accretion of discount 1,128,000 66,000 99,000
Net change in income taxes (8,068,000) (4,048,000) 195,000
----------- ----------- -----------
Net change 30,246,000 10,623,000 (328,000)
Balance, beginning of year 11,283,000 660,000 988,000
----------- ----------- -----------
Balance, end of year $41,529,000 $11,283,000 $ 660,000
=========== =========== ===========
</TABLE>
F-26
<PAGE> 73
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
Item 2 Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession
- --------------- ------------------------------------------------------------------------------------------------------
2.1 Purchase and Sale Agreement dated May 1, 1998 by and among Incorporated by
the Company, Energy Capital Investment Company PLC, EnCap Reference(1)
Equity 1994 Limited Partnership and NCI Enterprises, Inc.
2.2 Agreement and Plan of Merger dated August 14, 1998 by and Incorporated by
among the Company, Bargo Energy Resources, Ltd., SCL-CAL Reference(1)
Company and Future-Cal-Tex Corporation
2.3 Purchase and Sale Agreement between Bargo Energy Company Incorporated by
and TJG Investment, Inc., as Sellers, and the Company, as Reference(2)
Buyer, dated October 15, 1998
2.4 Purchase and Sale Agreement between Pledger Partners, Ltd., Incorporated by
as Seller and the Company, as Buyer, dated October 15, 1998 Reference(2)
</TABLE>
<PAGE> 74
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
2.5 Purchase and Sale Agreement between NCI Reserves, Ltd., Incorporated by
Southwest Sulfur & Oil, Inc., Wayne Newkumet, and Castello Reference(2)
Enterprises, Inc., as Sellers, and the Company, as Buyer,
dated October 15, 1998
2.6 Purchase and Sale Agreement between NCI Properties, Ltd., Incorporated by
as Seller, and the Company, as Buyer, dated October 15, 1998 Reference(2)
2.7 Purchase and Sale Agreement between Bargo Energy Resources, Incorporated by
Ltd., as Seller, and the Company, as Buyer, dated October Reference(2)
15, 1998
2.8 Purchase and Sale Agreement between Bargo Energy Resources, Incorporated by
Ltd., as Seller, and the Company, as Buyer, dated November Reference(3)
13, 1998
2.9 Asset Purchase Agreement and Plan of Reorganization dated Incorporated by
December 15, 1998 by and among the Company, Bargo Energy Reference(4)
Resources, Ltd., Bargo Energy Company and TJG Investments,
Inc
2.10 Purchase and Sale Agreement dated November 25, 1997, by and Incorporated by
among the Company, Energy Capital Investment Company PLC, Reference(6)
EnCap Equity 1994 Limited Partnership, and Gecko Booty 1994
I Limited Partnership
Item 3 Articles of Incorporation and Bylaws
- --------------- ------------------------------------------------------------------------------------------------------
3.11 Articles of Restatement of the Articles of Incorporation Incorporated by
Reference(5)
3.2 Bylaws Incorporated by
Reference(5)
Item 4 Instruments Defining the Rights of Security Holders, Including Indentures
- --------------- ------------------------------------------------------------------------------------------------------
4.1 Articles of Restatement of the Articles of Incorporation Incorporated by
Reference(5)
4.2 Bylaws Incorporated by
Reference(5)
4.3 Agreement dated August 14, 1998 by and among B. Carl Price, Incorporated by
Bargo Energy Resources, Ltd., Energy Capital Investment Reference(1)
Company PLC, and EnCap Equity 1994 Limited Partnership
4.4 Certificate of Designation of Convertible Preferred Stock, Incorporated by
Series A Reference(4)
</TABLE>
<PAGE> 75
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
Item 10 Material Contracts
- --------------- ------------------------------------------------------------------------------------------------------
10.1 Promissory Note dated November 25, 1997 from the Company to Incorporated by
Gecko booty 1994 I Limited Partnership Reference(6)
10.2 Promissory Note dated November 25, 1997, from the Company Incorporated by
to Energy Capital Investment Company, PLC Reference(6)
10.3 Amendment to Renewal Promissory Note dated May 1, 1998 by Incorporated by
the Company to Energy Capital Investment Company PLC dated Reference(1)
August 14, 1998
10.4 Renewal Promissory Note of the Company payable to Energy Incorporated by
Capital Investment Company PLC dated October 15, 1998 Reference(2)
10.5 Promissory Note dated November 25, 1997, from the Company Incorporated by
to EnCap Equity 1994 Limited Partnership Reference(6)
10.6 Amendment to Renewal Promissory Note dated May 1, 1998 by Incorporated by
the Company to EnCap Equity 1994 Limited Partnership dated Reference(1)
August 14, 1998
10.7 Renewal Promissory Note of the Company payable to EnCap Incorporated by
Equity 1994 Limited Partnership dated October 15, 1998 Reference(2)
10.8 Note Restructuring Agreement by and among the Company, Incorporated by
Energy Capital Investment Company PLC, EnCap Equity 1994 Reference(1)
Limited Partnership and Gecko Booty 1994 I Limited
Partnership dated August 14, 1998
10.9 Credit Agreement between the Company and Bank of America Incorporated by
National Trust and Savings Association dated August 14, 1998 Reference(1)
10.10 Amendment No. 1 to Credit Agreement between Bank of America Incorporated by
National Trust and Savings Association and the Company, Reference(3)
dated November 16, 1998
10.11 Amended and Restated Credit Agreement between the Company Incorporated by
and Bank of America National Trust and Savings Association Reference(4)
dated December 4, 1998
10.12 Amended and Restated Secured Promissory Note of the Company Incorporated by
payable to Bank of America National Trust and Savings Reference(3)
Association dated November 18, 1998
</TABLE>
<PAGE> 76
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
10.12 Master Subordination Agreement by and between Bank of Incorporated by
America National Trust and Savings Association and Energy Reference(1)
Capital Investment Company PLC and EnCap Equity 1994
Limited Partnership dated August 14, 1998
10.13 First Amendment to Master Subordination Agreement by and Incorporated by
among Bank of America National Trust and Savings Reference(2)
Association and Energy Capital Investment Company PLC,
EnCap Equity 1994 Limited Partnership, Bargo Energy
Company, and TJG Investments, Inc., dated October 15, 1998
10.14 Subordination Agreement by and among Bank of America Incorporated by
National Trust and Savings Association and Energy Capital Reference(2)
Investment Company PLC, EnCap Equity 1994 Limited
Partnership, Bargo Energy Company, and TJG Investments,
Inc., dated October 15, 1998
10.15 Intercreditor and Collateral Agency Agreement by and among Incorporated by
Energy Capital Investment Company PLC, EnCap Equity 1994 Reference(2)
Limited Partnership, Bargo Energy Company, and TJG
Investments, Inc., dated October 15, 1998
10.16 Promissory Note of the Company payable to Bargo Energy Incorporated by
Company in the principal amount of $3,397,600 dated October Reference(2)
15, 1998
10.17 Promissory Note of the Company payable to TJG Investments, Incorporated by
Inc. in the principal amount of $602,400 dated October 15, Reference(2)
1998
10.18 Security Agreement dated May 1, 1998 between the Company Incorporated by
and Energy Capital Investment Company PLC, EnCap Equity Reference(1)
1994 Limited Partnership, and Gecko Booty 1994 I Limited
Partnership
10.19 First Amendment to Security Agreement between Energy Incorporated by
Capital Investment Company PLC, EnCap Equity 1994 Limited Reference(2)
Partnership, Bargo Energy Company and TJG Investments,
Inc., as secured parties, and NCI-Shawnee Limited
Partnership, as debtor, dated October 15, 1998
10.20 First Amendment to Security Agreement between Energy Incorporated by
Capital Investment Company PLC, EnCap Equity 1994 Limited Reference(2)
Partnership, Bargo Energy Company and TJG Investments,
Inc., as secured parties, and Future Cal-Tex Corporation,
as debtor, dated October 15, 1998
</TABLE>
<PAGE> 77
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
10.21 Second Amendment to Security Agreement between Energy Incorporated by
Capital Investment Company PLC, EnCap Equity 1994 Limited Reference(2)
Partnership, Bargo Energy Company and TJG Investments,
Inc., as secured parties, and the Company, Future Energy
Corporation, Future Petroleum Corporation, Future
Acquisitions 1995, Ltd., and BMC Development No. 1 Limited
Partnership, as debtors, dated October 15, 1998
10.22 First Amendment to Security Agreement between Bank of Incorporated by
America National Trust and Savings Association, as lender, Reference(3)
and each of the Company, Future Energy Corporation, Future
Petroleum Corporation, Future CAL-TEX Corporation, BMC
Development No. 1 Limited Partnership, Future Acquisition
1995, Ltd., and NCI-Shawnee Limited Partnership, as
debtors, dated November 18, 1998
10.23 Guaranty dated April 30, 1998 by the Company in favor of Incorporated by
Energy Capital Investment Company PLC, EnCap Equity 1994 Reference(1)
Limited Partnership, and Gecko Booty 1994 I Limited
Partnership
10.24 Second Amendment to Guaranty between Energy Capital Incorporated by
Investment Company PLC, EnCap Equity 1994 Limited Reference(2)
Partnership, Bargo Energy Company and TJG Investments,
Inc., as sellers, and Future Energy Corporation, Future
Petroleum Corporation, BMC Development No. 1 Limited
Partnership, and Future Acquisition 1995, Ltd., as
guarantors, dated October 15, 1998
10.25 First Amendment to Guaranty between Energy Capital Incorporated by
Investment Company PLC, EnCap Equity 1994 Limited Reference(2)
Partnership, Bargo Energy Company and TJG Investments,
Inc., as sellers, and NCI-Shawnee Limited Partnership, as
guarantor, dated October 15, 1998
10.26 First Amendment to Guaranty between Energy Capital Incorporated by
Investment Company PLC, EnCap Equity 1994 Limited Reference(2)
Partnership, Bargo Energy Company and TJG Investments,
Inc., as sellers and Future Cal-Tex Corporation, as
guarantor, dated October 15, 1998
</TABLE>
<PAGE> 78
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
10.27 First Amendment to Guaranty between Bank of America Incorporated by
National Trust and Savings Association, as lender, and each Reference(3)
of the Company, Future Energy Corporation, Future Petroleum
Corporation, Future CAL-TEX Corporation, BMC Development
No. 1 Limited Partnership, Future Acquisition 1995, Ltd.,
and NCI-Shawnee Limited Partnership, as guarantors, dated
November 18, 1998
10.28 Pledge Agreement between Bank of America National Trust and Incorporated by
Savings Association and Bargo Energy Resources, Ltd. dated Reference(1)
August 14, 1998
10.29 Pledge Agreement between Bank of America National Trust and Incorporated by
Savings Association and Energy Capital Investment Company Reference(1)
PLC dated August 14, 1998
10.30 Pledge Agreement between Bank of America National Trust and Incorporated by
Savings Association and EnCap Equity 1994 Limited Reference(1)
Partnership dated August 14, 1998
10.31 Pledge Agreement between Bank of America National Trust and Incorporated by
Savings Association and B. Car Price dated August 14, 1998 Reference(1)
10.32 Pledge Agreement between Bank of America National Trust and Incorporated by
Savings Association and Don Wm. Reynolds dated August 14, Reference(1)
1998
10.33 Second Amendment to Pledge Agreement between Energy Capital Incorporated by
Investment Company PLC, EnCap Equity 1994 Limited Reference(2)
Partnership, Bargo Energy Company and TJG Investments,
Inc., as secured parties, and the Company, Future Energy
Corporation, and Future Petroleum Corporation, as debtors,
dated October 15, 1998
10.34 First Amendment to Pledge Agreement between Bank of America Incorporated by
National Trust and Savings Association, as secured party, Reference(3)
and each of the Company, Future Energy Corporation, Future
Petroleum Corporation, EnCap Equity 1994, Ltd., Energy
Capital Investment Company PLC, Bargo Energy Resources,
Ltd, B. Carl Price, and Don Wm. Reynolds, as debtors, dated
November 18, 1998
10.35 Pledge Agreement between Bank of America National Trust and Incorporated by
Savings Association and Bargo Energy Company dated December Reference(4)
15, 1998
</TABLE>
<PAGE> 79
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
10.36 Pledge Agreement between Bank of America National Trust and Incorporated by
Savings Association and TJG Investments, Inc. dated Reference(4)
December 15, 1998
10.37 Pledge Agreement between Bank of America National Trust and Incorporated by
Savings Association and James Sowell dated December 15, 1998 Reference(4)
10.38 Pledge Agreement between Bank of America National Trust and Incorporated by
Savings Association and Thomas D. Barrow dated December 15, Reference(4)
1998
10.39 Pledge Agreement between Bank of America National Trust and Incorporated by
Savings Association and Tim J. Goff dated December 15, 1998 Reference(4)
10.40 Pledge Agreement between Bank of America National Trust and Incorporated by
Savings Association and Bargo Operating Company, Inc. dated Reference(4)
December 15, 1998
10.41 Registration Rights Agreement among the Company and Bargo Incorporated by
Energy Resources, Ltd. dated August 14, 1998 Reference(1)
10.42 First Amendment to Registration Rights Agreement among the Incorporated by
Company, Bargo Energy Resources, Ltd., Bargo Energy Reference(4)
Company, TJG Investments, Inc. and certain other
shareholders dated December 15, 1998
10.43 Registration Rights Agreement dated November 25, 1997, Incorporated by
among the Company, Energy Capital Investment Company PLC, Reference(6)
and EnCap Equity 1994 Limited Partnership
10.44 Registration Rights Agreement among the Company, Energy Incorporated by
Capital Investment Company PLC and EnCap Equity 1994 Reference(1)
Limited Partnership dated August 14, 1998
10.45 First Amendment to Registration Rights Agreement among the Incorporated by
Company, Energy Capital Investment Company PLC and EnCap Reference(4)
Equity 1994 Limited Partnership dated December 15, 1998
10.46 Registration Rights Agreement among the Company, B. Carl Incorporated by
Price and certain other shareholders dated August 14, 1998 Reference(1)
10.47 First Amendment to Registration Rights Agreement among the Incorporated by
Company, B. Carl Price and certain other shareholders dated Reference(4)
December 15, 1998
</TABLE>
<PAGE> 80
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
10.48 Stock Purchase Warrant by the Company to Bargo Energy Incorporated by
Resources, Ltd. dated August 14, 1998 Reference(1)
10.49 Voting Agreement dated November 25, 1997 among B. Carl Incorporated by
Price, Don Wm. Reynolds, Energy Capital Investment Company Reference(6)
PLC, and EnCap Equity 1994 Limited Partnership
10.50 Shareholders' Agreement by and among the Company, Bargo Incorporated by
Energy Resources, Ltd., Energy Capital Investment Company Reference(1)
PLC, EnCap Equity 1994 Limited Partnership, B. Carl Price
and Don Wm. Reynolds dated August 14, 1998
10.51 Amended and Restated Shareholders' Agreement by and among Incorporated by
the Company, Bargo Energy Resources, Ltd., Energy Capital Reference(4)
Investment Company PLC, EnCap Equity 1994 Limited
Partnership, B. Carl Price, Don Wm. Reynolds, Bargo Energy
Company, TJG Investments, Inc. and certain other
shareholders dated December 15, 1998
10.52 Amended and Restated Employment Agreement of B. Carl Price Incorporated by
dated August 14, 1998 Reference(1)
10.53 Agreement between the Company and Don Wm. Reynolds dated as Incorporated by
of November 18, 1997 Reference(1)
10.54 Agreement between the Company and Robert Price dated as of Incorporated by
November 18, 1997 Reference(1)
10.55 1993 Employee Incentive Plan Incorporated by
Reference(5)
10.56 Renewal Promissory Note of the Company payable to Energy This Filing
Capital Investment Company PLC dated May 1, 1998
10.57 Renewal Promissory Note of the Company payable to EnCap This Filing
Equity 1994 Limited Partnership dated May 1, 1998
10.58 Security Agreement between Energy Capital Investment This Filing
Company PLC and EnCap Equity 1994 Limited Partnership,
as secured parties, and the Company, Future Energy
Corporation, Future Petroleum Corporation, Future Acquisitions
1995, Ltd., and BMC Development No. 1 Limited Partnership,
as debtors, dated November 25, 1997
10.59 First Amendment to Security Agreement between Energy Capital This Filing
Investment Company PLC and EnCap Equity 1994 Limited Partnership,
as secured parties, and the Company, Future Energy Corporation,
Future Petroleum Corporation, Future Acquisitions 1995, Ltd., and
BMC Development No. 1 Limited Partnership, as debtors, dated
May 1, 1998
10.60 Guaranty between Energy Capital Investment Company PLC, EnCap This Filing
Equity 1994 Limited Partnership, and Gecko Booty 1994 I Limited
Partnership, as sellers, and Future Energy Corporation, Future
Petroleum Corporation, BMC Development No. 1 Limited Partnership,
and Future Acquisition 1995, Ltd., as guarantors, dated November
25, 1997
10.61 Pledge Agreement between Energy Capital Investment Company PLC, This Filing
EnCap Equity 1994 Limited Partnership, and Gecko Booty 1994 I
Limited Partnership, as secured parties, and the Company, Future
Energy Corporation, and Future Petroleum Corporation, as debtors,
dated November 25, 1997
Item 21 Subsidiaries
- ----------------------------------------------------------------------------------------------------------------------
21.1 Schedule of Subsidiaries This Filing
27.1 Financial Data Schedule This Filing
</TABLE>
- ------------------------
(1) Incorporated herein by reference from the Company's Quarterly Report
on Form 10-QSB for the fiscal quarter ended June 30, 1998, filed with
the Securities Exchange and Commission on August 20, 1998. (file no.
000-08609)
(2) Incorporated herein by reference from the Company's Current report on
Form 8-K filed with the Securities and Exchange Commission on October
30, 1998. (file no. 000-08609)
<PAGE> 81
(3) Incorporated herein by reference from the Company's Current Report on
Form 8-K filed with the Securities and Exchange Commission on December
4, 1998. (file no. 000-08609)
(4) Incorporated herein by reference from the Company's Current Report on
Form 8-K filed with the Securities and Exchange Commission on December
30, 1998. (file no. 000-08609)
(5) Incorporated herein by reference from the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993, filed with the
Securities and Exchange Commission on May 20, 1994. (file no.
000-08609)
(6) Incorporated herein by reference from the Company's Current Report on
Form 8-K filed with the Securities and Exchange Commission on December
10, 1997.
(b) REPORTS ON FORM 8-K.
During the last quarter of the fiscal year ended December 31, 1998,
the Company filed reports on Form 8-K as follows:
<TABLE>
<CAPTION>
DATE OF EVENT REPORTED ITEM REPORTED
- ------------------------------------------------------ --------------------------------------------------
<S> <C>
December 17, 1998 Item 2. Acquisition or Disposition of Assets
Item 7. Financial Statements
December 15, 1998 Item 2. Acquisition or Disposition of Assets
Item 7. Financial Statements
November 19, 1998 Item 2. Acquisition or Disposition of Assets
Item 7. Financial Statements
October 30, 1998 Item 7. Financial Statements
October 15, 1998 Item 2. Acquisition or Disposition of Assets
Item 7. Financial Statements
</TABLE>
<PAGE> 1
EXHIBIT 10.56
RENEWAL PROMISSORY NOTE
$3,370,694.12 Houston, Texas May 1, 1998
FOR VALUE RECEIVED, the undersigned, FUTURE PETROLEUM CORPORATION, a
Utah corporation, hereby promises to pay to the order of ENERGY CAPITAL
INVESTMENT COMPANY PLC, an English investment company ("Lender") the principal
sum of THREE MILLION THREE HUNDRED SEVENTY THOUSAND SIX HUNDRED NINETY-FOUR AND
12 /100 Dollars ($3,370,694.12) with interest on the unpaid balance thereof from
the date hereof until maturity at the rate of ten percent (10%) per annum, both
principal and interest payable as hereinafter provided in lawful money of the
United States of America at 1100 Louisiana, Suite 3150, Houston, Texas 77002, or
at such other place within Harris County, Texas as from time to time may be
designated by the holder of this Note.
All past due principal and/or interest or installments thereof shall
bear interest at the highest rate for which the undersigned may legally contract
under applicable law or, if no such rate is designated under applicable law, at
the rate of eighteen percent (18%) per annum.
Interest only on this Note shall be due and payable monthly as it
accrues on the last business day of each month, beginning May 29, 1998 and on
the last business day of each succeeding month through and including December
31, 1998. Thereafter: (i) the principal of this Note shall be due and payable in
monthly installments of Thirty-Five Thousand One Hundred Eleven and 39/100
Dollars ($35,111.39) each, payable on the last business day of each calendar
month, beginning January 31, 1999, and continuing regularly thereafter until and
including December 31, 2003, on which date all unpaid principal of and accrued
interest on this Note shall be due and payable and (ii) interest shall be due
and payable monthly as it accrues, on the same dates as, but in addition to,
said installments of principal.
This Note (a) is executed and delivered in connection with and pursuant
to that certain Purchase and Sale Agreement dated November 25, 1997 (as now or
hereafter amended, supplemented, or restated the "November 1997 Purchase
Agreement") between the undersigned and Energy Capital Investment Company PLC,
EnCap Equity 1994 Limited Partnership and Gecko Booty 1994 I Limited Partnership
and is one of the "Notes" as defined therein, (b) is executed and delivered in
connection with and pursuant to that certain Purchase and Sale Agreement dated
May 1, 1998 (as now or hereafter amended, supplemented, or restated, the "May
1998 Purchase Agreement) between the undersigned and Energy Capital Investment
Company PLC, EnCap Equity 1994 Limited Partnership and NCI Enterprises, Inc.,
and is one of the "Notes" as defined therein, (c) is subject to the terms and
provisions thereof, which contains provisions for acceleration of maturity
hereof upon the happening of certain stated events, and (d) is secured by and
entitled to the benefits of certain security documents (as identified therein).
Reference is hereby made to (i) the November 1997 Purchase Agreement and the May
1998 Purchase Agreement for a description of certain rights, limitations of
rights, obligations and duties of the parties hereto and for the meanings
assigned to terms used and not defined herein, and (ii) the security documents
referenced above for a description of the nature and extent of the security
thereby provided and the rights of the parties thereto.
1
<PAGE> 2
This Note is in renewal, extension and increase, but not in novation or
extinguishment, of that certain Promissory Note dated November 25, 1997 executed
by the undersigned and payable to the order of Lender in the original principal
amount of $3,123,041.
The undersigned shall have the right to prepay, without penalty, at any
time and from time to time prior to maturity, all or any part of the unpaid
principal balance of this Note and/or all or any part of the unpaid interest
accrued to the date of such prepayment, provided that any such principal thus
paid is accompanied by accrued interest on such principal. Any partial
prepayments of principal shall be applied to installments thereof in the inverse
order of maturity.
It is the intent of the payee of this Note and the undersigned in the
execution of this Note and all other instruments now or hereafter securing this
Note to contract in strict compliance with applicable usury law. In furtherance
thereof, the said payee and the undersigned stipulate and agree that none of the
terms and provisions contained in this Note, or in any other instrument executed
in connection herewith, shall ever be construed to create a contract to pay for
the use, forbearance or detention of money, interest at a rate in excess of the
maximum interest rate permitted to be charged by applicable law; that neither
the undersigned nor any guarantors, endorsers or other parties now or hereafter
becoming liable for payment of this Note shall ever be obligated or required to
pay interest on this Note at a rate in excess of the maximum interest that may
be lawfully charged under applicable law; and that the provisions of this
paragraph shall control over all other provisions of this Note and any other
instruments now or hereafter executed in connection herewith which may be in
apparent conflict herewith. The holder of this Note expressly disavows any
intention to charge or collect excessive unearned interest or finance charges in
the event the maturity of this Note is accelerated. If the maturity of this Note
shall be accelerated for any reason or if the principal of this Note is paid
prior to the end of the term of this Note, and as a result thereof the interest
received for the actual period of existence of the loan evidenced by this Note
exceeds the applicable maximum lawful rate, the holder of this Note shall, at
its option, either refund to the undersigned the amount of such excess or credit
the amount of such excess against the principal balance of this Note then
outstanding and thereby shall render inapplicable any and all penalties of any
kind provided by applicable law as a result of such excess interest. In the
event that the said payee or any other holder of this Note shall contract for,
charge or receive any amount or amounts and/or any other thing of value which
are determined to constitute interest which would increase the effective
interest rate on this Note to a rate in excess of that permitted to be charged
by applicable law, an amount equal to interest in excess of the lawful rate
shall, upon such determination, at the option of the holder of this Note, be
either immediately returned to the undersigned or credited against the principal
balance of this Note then outstanding, in which event any and all penalties of
any kind under applicable law as a result of such excess interest shall be
inapplicable. By execution of this Note the undersigned acknowledges that it
believes the loan evidenced by this Note to be non-usurious and agrees that if,
at any time, the undersigned should have reason to believe that such loan is in
fact usurious, it will give the holder of this Note notice of such condition and
the undersigned agrees that said holder shall have ninety (90) days in which to
make appropriate refund or other adjustment in order to correct such condition
if in fact such exists. The term "applicable
2
<PAGE> 3
law" as used in this Note shall mean the laws of the State of Texas or the laws
of the United States, whichever laws allow the greater rate of interest, as such
laws now exist or may be changed or amended or come into effect in the future.
Should the indebtedness represented by this Note or any part thereof be
collected at law or in equity or through any bankruptcy, receivership, probate
or other court proceedings or if this Note is placed in the hands of attorneys
for collection after default, the undersigned and all endorsers, guarantors and
sureties of this Note jointly and severally agree to pay to the holder of this
Note in addition to the principal and interest due and payable hereon all the
costs and expenses of said holder in enforcing this Note including, without
limitation, reasonable attorneys' fees and legal expenses.
The undersigned and all endorsers, guarantors and sureties of this Note
and all other persons liable or to become liable on this Note severally waive
presentment for payment, demand, notice of demand and of dishonor and nonpayment
of this Note, notice of intention to accelerate the maturity of this Note,
protest and notice of protest, diligence in collecting, and the bringing of suit
against any other party, and agree to all renewals, extensions, modifications,
partial payments, releases or substitutions of security, in whole or in part,
with or without notice, before or after maturity.
THIS NOTE AND THE RIGHTS AND DUTIES OF THE PARTIES HEREUNDER SHALL BE
GOVERNED FOR ALL PURPOSES BY THE LAW OF THE STATE OF TEXAS AND THE LAW OF THE
UNITED STATES APPLICABLE TO TRANSACTIONS WITHIN SUCH STATE.
FUTURE PETROLEUM CORPORATION,
a Utah corporation
By: /s/ B. CARL PRICE
---------------------------------
B. Carl Price, President
3
<PAGE> 1
EXHIBIT 10.57
RENEWAL PROMISSORY NOTE
$3,714,305.88 Houston, Texas May 1, 1998
FOR VALUE RECEIVED, the undersigned, FUTURE PETROLEUM CORPORATION, a
Utah corporation, hereby promises to pay to the order of ENCAP EQUITY 1994
LIMITED PARTNERSHIP, a Texas limited partnership ("Lender") the principal sum of
THREE MILLION SEVEN HUNDRED FOURTEEN THOUSAND THREE HUNDRED FIVE AND 88/100
Dollars ($3,714,305.88) with interest on the unpaid balance thereof from the
date hereof until maturity at the rate of ten percent (10%) per annum, both
principal and interest payable as hereinafter provided in lawful money of the
United States of America at 1100 Louisiana, Suite 3150, Houston, Texas 77002, or
at such other place within Harris County, Texas as from time to time may be
designated by the holder of this Note.
All past due principal and/or interest or installments thereof shall
bear interest at the highest rate for which the undersigned may legally contract
under applicable law or, if no such rate is designated under applicable law, at
the rate of eighteen percent (18%) per annum.
Interest only on this Note shall be due and payable monthly as it
accrues on the last business day of each month, beginning May 29, 1998 and on
the last business day of each succeeding month through and including December
31, 1998. Thereafter: (i) the principal of this Note shall be due and payable in
monthly installments of Thirty-Eight Thousand Six Hundred Ninety and 69/100
Dollars ($38,690.69) each, payable on the last business day of each calendar
month, beginning January 31, 1999, and continuing regularly thereafter until and
including December 31, 2003, on which date all unpaid principal of and accrued
interest on this Note shall be due and payable and (ii) interest shall be due
and payable monthly as it accrues, on the same dates as, but in addition to,
said installments of principal.
This Note (a) is executed and delivered in connection with and pursuant
to that certain Purchase and Sale Agreement dated November 25, 1997 (as now or
hereafter amended, supplemented, or restated, the "Purchase Agreement") between
the undersigned and Energy Capital Investment Company PLC, EnCap Equity 1994
Limited Partnership and Gecko Booty 1994 I Limited Partnership and is one of the
"Notes" as defined therein, (b) is executed and delivered in connection with and
pursuant to that certain Purchase and Sale Agreement dated May 1, 1998 (as now
or hereafter amended, supplemented, or restated, the "May 1998 Purchase
Agreement) between the undersigned and Energy Capital Investment Company PLC,
EnCap Equity 1994 Limited Partnership and NCI Enterprises, Inc., and is one of
the "Notes" as defined therein, (c) is subject to the terms and provisions
thereof, which contains provisions for acceleration of maturity hereof upon the
happening of certain stated events, and (d) is secured by and entitled to the
benefits of certain security documents (as identified therein). Reference is
hereby made to (i) the November 1997 Purchase Agreement and the May 1998
Purchase Agreement for a description of certain rights, limitations of rights,
obligations and duties of the parties hereto and for the meanings assigned to
terms used and not defined herein, and (ii) the security documents referenced
above for a description of the nature and extent of the security thereby
provided and the rights of the parties thereto.
This Note is in renewal, extension and increase, but not in novation or
extinguishment, of that certain Promissory Note dated as of November 25, 1997
executed by the undersigned and payable to the order of Lender in the original
principal amount of $3,301,959.
The undersigned shall have the right to prepay, without penalty, at any
time and from time to time prior to maturity, all or any part of the unpaid
principal balance
<PAGE> 2
of this Note and/or all or any part of the unpaid interest accrued to the date
of such prepayment, provided that any such principal thus paid is accompanied by
accrued interest on such principal. Any partial prepayments of principal shall
be applied to installments thereof in the inverse order of maturity.
It is the intent of the payee of this Note and the undersigned in the
execution of this Note and all other instruments now or hereafter securing this
Note to contract in strict compliance with applicable usury law. In furtherance
thereof, the said payee and the undersigned stipulate and agree that none of the
terms and provisions contained in this Note, or in any other instrument executed
in connection herewith, shall ever be construed to create a contract to pay for
the use, forbearance or detention of money, interest at a rate in excess of the
maximum interest rate permitted to be charged by applicable law; that neither
the undersigned nor any guarantors, endorsers or other parties now or hereafter
becoming liable for payment of this Note shall ever be obligated or required to
pay interest on this Note at a rate in excess of the maximum interest that may
be lawfully charged under applicable law; and that the provisions of this
paragraph shall control over all other provisions of this Note and any other
instruments now or hereafter executed in connection herewith which may be in
apparent conflict herewith. The holder of this Note expressly disavows any
intention to charge or collect excessive unearned interest or finance charges in
the event the maturity of this Note is accelerated. If the maturity of this Note
shall be accelerated for any reason or if the principal of this Note is paid
prior to the end of the term of this Note, and as a result thereof the interest
received for the actual period of existence of the loan evidenced by this Note
exceeds the applicable maximum lawful rate, the holder of this Note shall, at
its option, either refund to the undersigned the amount of such excess or credit
the amount of such excess against the principal balance of this Note then
outstanding and thereby shall render inapplicable any and all penalties of any
kind provided by applicable law as a result of such excess interest. In the
event that the said payee or any other holder of this Note shall contract for,
charge or receive any amount or amounts and/or any other thing of value which
are determined to constitute interest which would increase the effective
interest rate on this Note to a rate in excess of that permitted to be charged
by applicable law, an amount equal to interest in excess of the lawful rate
shall, upon such determination, at the option of the holder of this Note, be
either immediately returned to the undersigned or credited against the principal
balance of this Note then outstanding, in which event any and all penalties of
any kind under applicable law as a result of such excess interest shall be
inapplicable. By execution of this Note the undersigned acknowledges that it
believes the loan evidenced by this Note to be non-usurious and agrees that if,
at any time, the undersigned should have reason to believe that such loan is in
fact usurious, it will give the holder of this Note notice of such condition and
the undersigned agrees that said holder shall have ninety (90) days in which to
make appropriate refund or other adjustment in order to correct such condition
if in fact such exists. The term "applicable law" as used in this Note shall
mean the laws of the State of Texas or the laws of the United States, whichever
laws allow the greater rate of interest, as such laws now exist or may be
changed or amended or come into effect in the future.
Should the indebtedness represented by this Note or any part thereof be
collected at law or in equity or through any bankruptcy, receivership, probate
or other court proceedings or if this Note is placed in the hands of attorneys
for collection after default, the undersigned and all endorsers, guarantors and
sureties of this Note jointly and severally agree to pay to the holder of this
Note in addition to the principal and interest due and payable hereon all the
costs and expenses of said holder in enforcing this Note including, without
limitation, reasonable attorneys' fees and legal expenses.
The undersigned and all endorsers, guarantors and sureties of this Note
and all other persons liable or to become liable on this Note severally waive
presentment for
<PAGE> 3
payment, demand, notice of demand and of dishonor and nonpayment of this Note,
notice of intention to accelerate the maturity of this Note, protest and notice
of protest, diligence in collecting, and the bringing of suit against any other
party, and agree to all renewals, extensions, modifications, partial payments,
releases or substitutions of security, in whole or in part, with or without
notice, before or after maturity.
THIS NOTE AND THE RIGHTS AND DUTIES OF THE PARTIES HEREUNDER SHALL BE
GOVERNED FOR ALL PURPOSES BY THE LAW OF THE STATE OF TEXAS AND THE LAW OF THE
UNITED STATES APPLICABLE TO TRANSACTIONS WITHIN SUCH STATE.
FUTURE PETROLEUM CORPORATION,
a Utah corporation
By: /s/ B. CARL PRICE
-----------------------------
B. Carl Price, President
<PAGE> 1
EXHIBIT 10.58
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement") is made as of November 25,
1997 by each of the undersigned (each individually a "Debtor" and collectively,
"Debtors"), in favor of Energy Capital Investment Company PLC, an English
investment company, EnCap Equity 1994 Limited Partnership, a Texas limited
partnership, and Gecko Booty 1994 I Limited Partnership, a Texas limited
partnership (collectively, "Secured Party").
RECITALS:
1. Future Petroleum Corporation, a Utah corporation ("Buyer") has executed
those certain promissory notes of even date herewith, payable to the
order of Secured Party in the aggregate principal amount of $6,600,000
(such promissory notes, as from time to time amended, and all
promissory notes given in substitution, renewal or extension therefor
or thereof, in whole or in part, collectively, the "Notes").
2. The Notes were executed pursuant to a Purchase and Sale Agreement dated
November 25, 1997 (the "Purchase Agreement"), by and between Buyer and
Secured Party, pursuant to which Buyer has agreed to purchase from
Secured Party all of the limited partnership interests in each of BMC
Development No. 1 Limited Partnership and Future Acquisition 1995,
Ltd., each a Texas limited partnership (together with their successors,
each a "Partnership"), and all of the assets of Gecko Booty 1994 I
Limited Partnership, and pursuant to which Secured Party has agreed to
extend credit to Buyer under the Notes to consummate such purchase.
3. Pursuant to the Purchase Agreement, each Partnership, Future Energy
Corporation, a Nevada corporation ("Future Nevada"), and Future
Petroleum Corporation, a Texas corporation ("Future Texas"), each a
wholly-owned Subsidiary of Buyer and the sole limited and general
partners of each Partnership, respectively, are concurrently herewith
giving to Secured Party a Guaranty of even date herewith (as from time
to time amended, supplemented or restated, the "Guaranty") of all of
the indebtedness of Buyer under the Purchase Agreement and the Notes.
4. It is a condition precedent to Secured Party's obligation to extend
credit to Buyer pursuant to the Purchase Agreement that Debtors shall
execute and deliver to Secured Party a satisfactory security agreement
granting liens on and security interests in all of their assets to
secure Debtors' obligations under the Purchase Agreement, the Notes and
the Guaranty.
5. Buyer owns directly (i) all of the issued and outstanding shares of
capital stock of Future Nevada, which in turn owns a 99% limited
partnership interest in each Partnership, and (ii) all of the issued
and outstanding shares of capital stock of Future Texas, which in turn
owns a 1% general partnership interest in each Partnership.
6. Buyer, Future Nevada, Future Texas, the Partnerships and the other
direct and indirect subsidiaries of Buyer are mutually dependent on
each other in the conduct of their respective businesses under a
holding company structure, with the credit needed from time to time by
each often being provided by another or by means of financing obtained
by one such affiliate with the support of the others for their mutual
benefit and the ability of each to obtain such financing being
dependent on the successful operations of the others.
7. The board of directors of each Debtor that is a corporation, and the
board of directors of Future Texas, as general partner of each
Partnership, has determined that such Debtor's execution,
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delivery and performance of this Agreement may reasonably be expected
to benefit such Debtor, directly or indirectly, and is in the best
interests of such Debtor.
NOW, THEREFORE, in consideration of the premises, of the benefits which
will inure to Debtors from Secured Party's extension of credit under the Notes,
and of Ten Dollars and other good and valuable consideration, the receipt and
sufficiency of all of which are hereby acknowledged, and in order to induce
Secured Party to extend credit under the Purchase Agreement, each Debtor hereby
agrees with Secured Party as follows:
ARTICLE I - Definitions and References
Section 1.1. General Definitions. As used herein, the terms
"Agreement", "Debtor", "Secured Party", "Buyer", "Notes", "Purchase Agreement",
"Partnership", "Future Nevada", "Future Texas" and "Guaranty" shall have the
meanings indicated above, and the following terms shall have the following
meanings:
"Collateral" means all property, of whatever type, which is described
in Section 2.1 as being at any time subject to a security interest granted
hereunder to Secured Party.
"Documents" means all "documents" (as defined in the UCC) or other
receipts covering, evidencing or representing Inventory, Equipment, or other
goods.
"Equipment" means all equipment (as defined in the UCC) in whatever
form, wherever located, and whether now or hereafter existing, and all parts
thereof, all accessions thereto, and all replacements therefor.
"General Intangibles" means all general intangibles (as defined in the
UCC) of any kind (including choses in action, tax refunds, insurance proceeds,
and contract rights), and all instruments, security agreements, leases,
contracts, and other rights (except those constituting Receivables, Documents,
or Instruments) to receive payments of money or the ownership or possession of
property.
"Instruments" means all "instruments", "chattel paper" or "letters of
credit" (as each is defined in" the UCC).
"Inventory" means all inventory (as defined in the UCC) in all of its
forms, wherever located and whether now or hereafter existing, including (a) all
movable property and other goods held for sale or lease, all movable property
and other goods furnished or to be furnished under contracts of service, all raw
materials and work in process, and all materials and supplies used or consumed
in a business, (b) all movable property and other goods which are part of a
product or mass, (c) all movable property and other goods which are returned to
or repossessed by the seller, lessor, or supplier thereof, (d) all goods and
substances in which any of the foregoing is commingled or to which any of the
foregoing is added, and (e) all accessions to, products of, and documents for
any of the foregoing.
"Obligation Documents" means the Purchase Agreement, the Notes, the
Guaranty, the Note Documents, and all other documents and instruments under, by
reason of which, or pursuant to which any or all of the Secured Obligations are
evidenced, governed, secured, guaranteed, or otherwise dealt with, and all other
agreements, certificates, and other documents, instruments and writings
heretofore or hereafter delivered in connection herewith or therewith.
"Other Liable Party" means any Person, other than Debtors, who may now
or may at any time hereafter be primarily or secondarily liable for any of the
Secured Obligations or who may now or may at any time hereafter have granted to
Secured Party a Lien upon any property as security for the Secured Obligations.
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"Proceeds" means, with respect to any property of any kind, all
proceeds of, and all other profits, products, rentals or receipts, in whatever
form, arising from any sale, exchange, collection, lease, licensing or other
disposition of, distribution in respect of, or other realization upon, such
property, including all claims against third parties for loss of, damage to or
destruction of, or for proceeds payable under (or unearned premiums with respect
to) insurance in respect of, such property (regardless of whether Secured Party
is named a loss payee thereunder), and any payments paid or owing by any third
party under any indemnity, warranty, or guaranty with respect to such property,
and any condemnation or requisition payments with respect to such property, in
each case whether now existing or hereafter arising.
"Receivables" means (a) all accounts (as defined in the UCC) and all
other rights to payment for goods or other personal property which have been (or
are to be) sold, leased, or exchanged or for services which have been (or are to
be) rendered, regardless of whether such accounts or other rights to payment
have been earned by performance and regardless of whether such accounts or other
rights to payment are evidenced by or characterized as accounts receivable,
contract rights, book debts, notes, drafts or other obligations of indebtedness,
(b) all Documents and Instruments of any kind relating to such accounts or other
rights to payment or otherwise arising out of or in connection with the sale,
lease or exchange of goods or other personal property or the rendering of
services, (c) all rights in, to, or under all security agreements, leases and
other contracts securing or otherwise relating to any such accounts, rights to
payment, Documents, or Instruments, (d) all rights in, to and under any purchase
orders, service contracts, or other contracts out of which such accounts and
other rights to payment arose (or will arise on performance), and (e) all rights
in or pertaining to any goods arising out of or in connection with any such
purchase orders, service contracts, or other contracts, including rights in
returned or repossessed goods and rights of replevin, repossession, and
reclamation.
"Secured Obligations" has the meaning given such term in Section 2.2.
"UCC" means the Uniform Commercial Code in effect in the State of Texas
on the date hereof.
Section 1.2. Incorporation of Other Definitions. Reference is hereby
made to the Purchase Agreement for a statement of the terms thereof. All
capitalized terms used in this Agreement which are defined in the Purchase
Agreement and not otherwise defined herein shall have the same meanings herein
as set forth therein. All terms used in this Agreement which are defined in the
UCC and not otherwise defined herein or in the Purchase Agreement shall have the
same meanings herein as set forth therein, except where the context otherwise
requires.
Section 1.3. Attachments. All exhibits or schedules which may be
attached to this Agreement are a part hereof for all purposes.
Section 1.4. Amendment of Defined Instruments. Unless the context
otherwise requires or unless otherwise provided herein, references in this
Agreement to a particular agreement, instrument or document (including, but not
limited to, references in Section 2.1) also refer to and include all renewals,
extensions, amendments, modifications, supplements or restatements of any such
agreement, instrument or document, provided that nothing contained in this
Section shall be construed to authorize any Person to execute or enter into any
such renewal, extension, amendment, modification, supplement or restatement.
Section 1.5. References and Titles. All references in this Agreement to
Exhibits, Articles, Sections, subsections, and other subdivisions refer to the
Exhibits, Articles, Sections, subsections and other subdivisions of this
Agreement unless expressly provided otherwise. Titles appearing at the beginning
of
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<PAGE> 4
any subdivision are for convenience only and do not constitute any part of any
such subdivision and shall be disregarded in construing the language contained
in this Agreement. The words "this Agreement", "herein", "hereof", "hereby",
"hereunder" and words of similar import refer to this Agreement as a whole and
not to any particular subdivision unless expressly so limited. The phrases "this
Section" and "this subsection" and similar phrases refer only to the Sections or
subsections hereof in which the phrase occurs. The word "or" is not exclusive,
and the word "including" (in all of its forms) means "including without
limitation". Pronouns in masculine, feminine and neuter gender shall be
construed to include any other gender, and words in the singular form shall be
construed to include the plural and vice versa unless the context otherwise
requires.
ARTICLE II - Security Interest
Section 2.1. Grant of Security Interest. As collateral security for all
of the Secured Obligations, each Debtor hereby pledges and assigns to Secured
Party, and grants to Secured Party a continuing security interest, in and to all
right, title and interest of each Debtor in and to any and all of the following
property, whether now owned or existing or hereafter acquired or arising and
regardless of where located:
(a) all Receivables.
(b) all General Intangibles.
(c) all Documents.
(d) all Instruments.
(e) all Inventory.
(f) all Equipment.
(g) All books and records (including customer lists, marketing
information, credit files, price lists, operating records, vendor and supplier
price lists, sales literature, computer software, computer hardware, computer
disks and tapes and other storage media, printouts and other materials and
records) of each Debtor pertaining to any of the Collateral.
(h) All moneys and property of any kind of any Debtor in the possession
or under the control of Secured Party.
(i) All Proceeds of any and all of the foregoing Collateral.
In each case, the foregoing shall be covered by this Agreement, whether any
Debtor's ownership or other rights therein are presently held or hereafter
acquired and howsoever any Debtor's interests therein may arise or appear
(whether by ownership, security interest, claim or otherwise).
Each Debtor other than Buyer and Secured Party (by its acceptance
hereof), hereby confirm that it is their intention that the security interests
granted by such Debtor hereunder not constitute a fraudulent transfer or
fraudulent conveyance for purposes of any federal or state law. To effectuate
the foregoing intention, each such Debtor and Secured Party (by its acceptance
hereof) hereby irrevocably agree and understand that, notwithstanding any other
provision of this Agreement, the Collateral granted by such Debtor hereunder
shall be limited to the maximum amount of Collateral that can be pledged without
rendering this Agreement, as it relates to such Debtor, voidable under
applicable law relating to fraudulent conveyances or fraudulent transfers, and
not for any greater amount.
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Section 2.2. Secured Obligations. The security interest created hereby
in the Collateral constitutes continuing collateral security for all of the
following obligations, indebtedness and liabilities, whether now existing or
hereafter incurred or arising:
(a) Purchase Agreement Indebtedness. The payment by Buyer, as and when
due and payable, of the "Obligations", as defined in the Purchase Agreement, and
of all amounts from time to time owing by Buyer under or in respect of the
Purchase Agreement, the Notes or any of the other Obligation Documents.
(b) Guaranty Indebtedness. The payment by each Partnership, Future
Nevada and Future Texas, as and when due and payable, of all amounts from time
to time owing by such Debtor under or in respect of the Guaranty, or any of the
other Obligation Documents to which such Debtor is a party, and the due
performance by such Debtor of all of its other respective obligations under or
in respect of the Guaranty and such other Obligation Documents.
(c) Renewals. All renewals, extensions, amendments, modifications,
supplements, or restatements of or substitutions for any of the foregoing.
(d) Performance. The due performance and observance by each Debtor of
all of its other obligations from time to time existing under or in respect of
any of the Obligation Documents.
As used herein, the term "Secured Obligations" refers to all present and future
indebtedness, obligations and liabilities of whatever type which are described
above in this section, including any interest which accrues after the
commencement of any case, proceeding, or other action relating to the
bankruptcy, insolvency, or reorganization of any Debtor. Each Debtor hereby
acknowledges that the Secured Obligations are owed to each Secured Party and
that each Secured Party is entitled to the benefits of the Liens given under
this Agreement.
ARTICLE III - Representations, Warranties and Covenants
Section 3.1. Representations and Warranties. Each Debtor hereby
represents and warrants to Secured Party as follows:
(a) Ownership Free of Liens. Each Debtor has good and marketable title
to the Collateral, free and clear of all Liens, encumbrances or adverse claims
except for the security interest created by this Agreement and the security
interests and other encumbrances expressly permitted by the Purchase Agreement.
No dispute, right of setoff, counterclaim or defense exists with respect to all
or any part of the Collateral. No effective financing statement or other
registration or instrument similar in effect covering all or any part of the
Collateral is on file in any recording office except any which have been filed
in favor of or assigned to Secured Party. None of the Collateral is in the
possession of any Person other than Debtors or Secured Party, except for
Collateral being transported in the ordinary course of business.
(b) No Conflicts or Consents. Neither the ownership or the intended use
of the Collateral by any Debtor, nor the grant of the security interest by each
Debtor to Secured Party herein, nor the exercise by Secured Party of its rights
or remedies hereunder, will (i) conflict with any provision of (a) any Law, (b)
the organizational documents of any Debtor, or (c) any agreement, judgment,
license, order or permit applicable to or binding upon any Debtor, or (ii)
result in or require the creation of any Lien, charge or encumbrance upon any
assets or properties of any Debtor or any Restricted Person except as expressly
contemplated in the Obligation Documents. Except as expressly contemplated in
the Obligation Documents, no consent, approval, authorization or order of, and
no notice to or filing with any Tribunal or
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third party is required in connection with the grant by each Debtor of the
security interest herein, or the exercise by Secured Party of its rights and
remedies hereunder.
(c) Security Interest. Each Debtor has and will have at all times full
right, power and authority to grant a security interest in the Collateral to
Secured Party as provided herein, free and clear of any Lien, adverse claim, or
encumbrance, except for the security interests and other encumbrances expressly
permitted by the Purchase Agreement. This Agreement creates a valid and binding
first priority security interest in favor of Secured Party in the Collateral,
which security interest secures all of the Secured Obligations.
(d) Perfection. The taking possession by Secured Party of all
Instruments and money constituting Collateral from time to time will perfect,
and establish the first priority of, Secured Party's security interest hereunder
in such Collateral. The filing of the financing statements delivered
concurrently herewith by each Debtor to Secured Party will perfect, and
establish the first priority (subject only to the security interests and other
encumbrances expressly permitted by the Purchase Agreement) of, Secured Party's
security interest hereunder in all other Collateral. No further or subsequent
filing, recording, registration, other public notice or other action is
necessary or desirable to perfect or otherwise continue, preserve or protect
such security interest except for continuation statements or filings described
in Section 3.2(b).
(e) Receivables. Each Receivable represents the valid and legally
binding indebtedness of a bona fide account debtor arising from the sale or
lease by Debtors of goods or the rendition by Debtors of services and is not
subject to contra-accounts, setoffs, defenses or counterclaims by or available
to account debtors obligated on the Receivables except as disclosed to Secured
Party. Subject to adjustments made (or to be made) in the ordinary course of
business, Goods which have been delivered to, and services which have been
rendered by any Debtor to the account debtor on each such Receivable have been
accepted by such account debtor, and the amount shown as to each Receivable on
each Debtor's books is the true and undisputed amount owing and unpaid thereon,
subject only to discounts, allowances, rebates, Purchases and adjustments to
which such account debtor has a right.
(f) General Intangibles. Each General Intangible included within the
Collateral which is material to each Debtor's business constituting a right to
collect amounts due or to become due thereunder represents the valid and legally
binding obligation of each other Person who is a party thereto or who is
otherwise stated to be obligated thereunder, subject to no contra-accounts,
setoffs, defenses, counterclaims, discounts, allowances, rebates, credits or
adjustments by or available to account debtors obligated thereon, except for
those which do not materially impair the value to such Debtor or the enforcement
by such Debtor of such General Intangibles.
(g) Documents and Instruments. All Documents and Instruments included
within the Collateral are valid and genuine. Any such Document or Instrument has
only one original counterpart which constitutes collateral within the meaning of
the UCC or the Law of any applicable jurisdiction, and, if requested by Secured
Party, all such original counterparts (other than checks delivered in payment of
Receivables in the ordinary course of business) have been delivered into the
possession of Secured Party.
(h) Goods. None of the Collateral which constitutes goods (i) is
covered by any Document (other than Documents which are subject hereto and have
been delivered to Secured Party), (ii) is subject to any landlord's lien or
similar Lien (other than the security interests and other encumbrances expressly
permitted by the Purchase Agreement), (iii) has been related to, attached to, or
used in connection with any real property so as to constitute a fixture upon
such real property (except for real property which is subject to a Lien in favor
of Secured Party), (iv) is now kept or is intended to be kept at any location
other than as disclosed to Secured Party in writing (except for goods in transit
in the ordinary course of each
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Debtor's business), (v) is installed in or affixed to other goods so as to be an
accession to such other goods (unless such other goods are included in the
Collateral), or (vi) has been produced in violation of the Fair Labor Standards
Act, as amended. All such goods are insured to the extent required under the
Purchase Agreement.
Section 3.2. General Covenants Applicable to All Collateral. Unless
Secured Party shall otherwise consent in writing, each Debtor will at all times
comply with the covenants contained in this Section 3.2 from the date hereof and
so long as any part of the Secured Obligations is outstanding.
(a) Change of Name, Location, or Structure; Additional Filings. Each
Debtor recognizes that financing statements pertaining to the Collateral have
been or may be filed where such Debtor maintains any Collateral, has its records
concerning any Collateral or has its chief executive office or chief place of
business. Without limitation of any other covenant herein, no Debtor will cause
or permit any change to be made in its name, identity or organizational
structure, or any change to be made to a jurisdiction other than as represented
in Section 3.1 hereof in (i) the location of any Collateral (except with respect
to Equipment which may be relocated within the original filing jurisdiction
applicable thereto), (ii) the location of any records concerning any Collateral
or (iii) in the location of its chief executive office or principal place of
business, unless such Debtor shall have first (1) notified Secured Party of such
change at least thirty (30) days prior to the effective date of such change, (2)
taken all action requested by Secured Party (under the following subsection (b)
or otherwise) for the purpose of further confirming and protecting Secured
Party's security interests and rights under this Agreement and the perfection
and priority thereof, and (3) if requested by Secured Party, provide to Secured
Party a legal opinion to its satisfaction confirming that such change will not
adversely affect in any way Secured Party's security interests and rights under
this Agreement or the perfection or priority thereof. In any notice furnished
pursuant to this subsection, each Debtor will expressly state that the notice is
required by this Agreement and contains facts that may require additional
filings of financing statements or other notices for the purposes of continuing
perfection of Secured Party's security interest in the Collateral.
(b) Further Assurances. Each Debtor will, at its expense as from time
to time reasonably requested by Secured Party, promptly execute and deliver all
further instruments, agreements, filings and registrations, and take all further
action that may be necessary or that Secured Party may in good faith request in
order: (i) to confirm and validate this Agreement and Secured Party's rights and
remedies hereunder, (ii) to correct any errors or omissions in the descriptions
herein of the Secured Obligations or the Collateral or in any other provisions
hereof, (iii) to perfect, register and protect the security interests and rights
created or purported to be created hereby and the first priority of such
security interests and rights, (iv) to enable Secured Party to exercise and
enforce its rights and remedies hereunder in respect of the Collateral, or (v)
to otherwise give Secured Party the full benefits of the rights and remedies
described in or granted under this Agreement. As part of the foregoing each
Debtor will, whenever reasonably requested by Secured Party (1) execute and file
any financing statements, continuation statements, and other filings or
registrations relating to Secured Party's security interests and rights
hereunder, and any amendments thereto, (2) mark its books and records relating
to any Collateral to reflect that such Collateral is subject to this Agreement
and the security interests hereunder and (3) deliver to Secured Party (upon
request, to the extent not otherwise required hereunder to be delivered without
request) all originals of chattel paper, Documents or Instruments which are from
time to time included in the Collateral. Upon the occurrence and during the
continuation of a Default, to the extent requested by Secured Party from time to
time, each Debtor will obtain from any material account debtor or other obligor
on the Collateral the acknowledgment of such account debtor or obligor that such
Collateral is subject to this Agreement.
(c) Inspection and Information. Each Debtor will keep adequate records
concerning the Collateral and will permit Secured Party and all representatives
appointed by Secured Party, including independent accountants, agents,
attorneys, appraisers and any other persons, to inspect any of the
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Collateral and the books and records of or relating to the Collateral at any
time during normal business hours, and to make photocopies and photographs
thereof, and to write down and record any information as such representatives
shall obtain. Upon request from time to time by Secured Party, each Debtor will
furnish to Secured Party (i) any information concerning any covenant, provision
or representation contained herein or any other matter in connection with the
Collateral or such Debtor's business, properties, or financial condition, and
(i) statements and schedules identifying and describing the Collateral and other
reports and information requested in connection with the Collateral, all in
reasonable detail.
(d) Ownership, Liens, Possession and Transfers. Each Debtor will
maintain good and marketable title to all Collateral, free and clear of all
Liens, encumbrances or adverse claims except for the security interest created
by this Agreement and Liens permitted under the Purchase Agreement, and no
Debtor will grant or allow any such Liens, encumbrances or adverse claims to
exist. No Debtor will grant or allow to remain in effect, and each Debtor will
cause to be terminated, any financing statement or other registration or
instrument similar in effect covering all or any part of the Collateral, except
any which have been filed in favor of (or assigned to) Secured Party. Each
Debtor will defend Secured Party's right, title and special property and
security interest in and to the Collateral against the claims of any Person.
Each Debtor (i) will insure that all of the Collateral -- whether goods,
Documents, Instruments, or otherwise -- is and remains in the possession of such
Debtor or Secured Party (or a bailee selected by Secured Party who is holding
such Collateral for the benefit of Secured Party), except for goods being
transported in the ordinary course of business, and (ii) will not sell, assign
(by operation of Law or otherwise), transfer, exchange, lease or otherwise
dispose of any of the Collateral except in the ordinary course of business.
(e) Impairment of Security Interest. No Debtor will take or fail to
take any action which would in any manner impair the value or enforceability of
Secured Party's first priority security interest in any Collateral.
(f) Insurance.
(i) Each Debtor will, at its own expense, maintain insurance
with respect to all Collateral which constitutes goods in such amounts,
against such risks, in such form and with such insurers, as shall be
required under the Purchase Agreement. Each policy for liability
insurance shall provide for all losses to be paid on behalf of Secured
Party and the Debtor that owns the Collateral as their respective
interests may appear, and each policy for property damage insurance
shall provide for all losses to be paid directly to Secured Party. Each
such policy shall in addition (A) name the Debtor who owns the
Collateral and Secured Party as insured parties thereunder (without any
representation or warranty by or obligation upon Secured Party) as
their interests may appear, (B) contain the agreement by the insurer
that any loss thereunder shall be payable to Secured Party
notwithstanding any action, inaction or breach of representation or
warranty by such Debtor, (C) do not provide any recourse against
Secured Party for payment of premiums or other amounts with respect
thereto and (D) provide that at least thirty (30) days' prior written
notice of cancellation or of lapse shall be given to Secured Party by
the insurer. Each Debtor will, if so requested by Secured Party,
deliver to Secured Party original or duplicate policies of such
insurance and, as often as Secured Party may reasonably request, a
report of a reputable insurance broker with respect to such insurance.
Each Debtor will also, at the request of Secured Party, duly execute
and deliver instruments of assignment of such insurance policies and
cause the respective insurers to acknowledge notice of such assignment.
(ii) Reimbursement under any liability insurance maintained by
any Debtor pursuant to this Section 3.2(f) may be paid directly to the
Person who has incurred the loss or damage covered by such insurance.
With respect to any loss involving damage to Collateral which
constitutes goods as to which subsection (iii) of this Section 3.2(f)
is not applicable, each Debtor will make or
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cause to be made the necessary repairs to or replacements of such
Collateral owned by it, and any proceeds of insurance maintained by any
Debtor pursuant to this Section 3.2(f) shall be paid to such Debtor by
Secured Party as reimbursement for the costs of such repairs or
replacements as such repairs or replacements are made or acquired.
(iii) Upon the occurrence and during the continuance of an
Event of Default or upon the occurrence of a loss in excess of $50,000
per occurrence of any Collateral which constitutes goods, all insurance
payments in respect of such Collateral shall be paid to Secured Party
and applied as specified in Section 4.3 hereof.
Section 3.3. Covenants for Specified Types of Collateral. Unless
Secured Party shall otherwise consent in writing, each Debtor will at all times
comply with the covenants contained in this Section 3.3 from the date hereof and
so long as any part of the Secured Obligations is outstanding.
(a) Receivables. Each Debtor will, except as otherwise provided in
Sections 4.1(e) or 4.2(a), collect at its own expense all amounts due or to
become due under each Receivable which is included within the Collateral. In
connection with such collections, each Debtor may (and, upon the occurrence and
during the continuance of a Default, at Secured Party's direction, will) take
such action (not otherwise forbidden hereunder) as such Debtor (or, upon the
occurrence and during the continuance of a Default, Secured Party) may deem
necessary or advisable to enforce collection or performance of each such
Receivable. Except for actions and omissions in the ordinary course of business
which do not in the aggregate cause losses or reductions in excess of five
percent (5%) of the aggregate face amount of all such Receivables outstanding at
any time, each Debtor (i) will duly perform and cause to be performed all of its
obligations with respect to the goods or services, the sale or lease or
rendering of which gave rise or will give rise to each such Receivable, and (ii)
will not (whether through failure to duly perform its obligations under any
contracts, instruments, and agreements which are related to any such Receivable,
or by any written instrument, or otherwise) take or allow any action or omission
which causes any such Receivable to become subject to any contra-accounts,
setoffs, defenses, counterclaims, discounts, allowances, rebates, credits or
adjustments by or available to account debtors obligated on such Receivable.
(b) General Intangibles. Each Debtor will, except as otherwise provided
in Sections 4.1(e) or 4.2(a), collect at its own expense all amounts due or to
become due under each General Intangible included within the Collateral. In
connection with such collections, each Debtor may (and, upon the occurrence and
during the continuance of a Default, at Secured Party's direction, will) take
such action (not otherwise forbidden hereunder) as such Debtor (or, upon the
occurrence and during the continuance of a Default, Secured Party) may deem
necessary or advisable to enforce collection or performance of each such General
Intangible. Each Debtor will duly perform and cause to be performed all of its
obligations under any contracts, instruments, and agreements which are, or which
are related to, any General Intangibles of such Debtor. No Debtor will (whether
through failure to duly perform its obligations under any contracts,
instruments, and agreements which are related to any such General Intangibles,
or by any written instrument, or otherwise) take or allow any action or omission
which causes any such General Intangibles to become subject to any
contra-accounts, setoffs, defenses, counterclaims, discounts, allowances,
rebates, credits or adjustments by or available to account debtors obligated on
such General Intangibles, except for those which (i) in the case of such General
Intangibles under which money is owing to such Debtor, do not in the aggregate
exceed five percent (5%) of the aggregate face amount of all such General
Intangibles owing to such Debtor, and (ii) in the case of other General
Intangibles included within the Collateral, do not materially impair the value
or enforcement of such General Intangibles.
(c) Documents and Instruments. Each Debtor will at all times cause any
Documents or Instruments which are included within the Collateral to be valid
and genuine. Each Debtor will cause all
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Instruments included within the Collateral to have only one original
counterpart. If requested by Secured Party, each Debtor will promptly deliver to
Secured Party all originals of Documents or Instruments which are included
within the Collateral. No Debtor will (whether through failure to duly perform
its obligations under any contracts, instruments, and agreements which are
related to any Documents or Instruments which are included within the
Collateral, or by any written instrument, or otherwise) take or allow any action
or omission which causes any Documents or Instruments which are included within
the Collateral to become subject to any contra-accounts, setoffs, defenses,
counterclaims, discounts, allowances, rebates, credits or adjustments by or
available to the Persons obligated thereon. Upon request by Secured Party, each
Debtor will mark each chattel paper which is included within the Collateral with
a legend indicating that such chattel paper is subject to the security interest
granted by this Agreement.
(d) Inventory. Each Debtor will maintain, preserve, protect and store
all Inventory included within the Collateral in good condition, repair and
working order and in a manner which will not make void or cancelable any
insurance with respect to such Collateral. Each Debtor will promptly furnish to
Secured Party a statement respecting any loss or damage to any such Inventory
with an aggregate value in excess of $50,000. Except for transportation of
Inventory in the ordinary course of business, no Debtor will allow any such
Inventory to be located in any jurisdiction other than those in which is filed
an effective financing statement which perfects Secured Party's security
interest hereunder in such Inventory. Except for Documents delivered into the
possession of Secured Party, no Debtor will allow any Inventory included within
the Collateral to be covered by any Document. Except for transportation and
storage of Inventory in the ordinary course of business, no Debtor will cause or
permit the removal of any item of Inventory from such Debtor's possession,
control and risk of loss, and no Debtor will sell, assign (by operation of Law
or otherwise), transfer, exchange, lease or otherwise dispose of any Inventory,
other than in connection with the following:
(i) Sales or leases, other than during the continuance of an
Event of Default, of Inventory in the ordinary course of business, and
(ii) Possession of Inventory by Secured Party or by a bailee
selected by Secured Party who is holding such Inventory for the benefit
of Secured Party.
(e) Equipment. Each Debtor will maintain, preserve, protect and keep
all Equipment included within the Collateral in good condition, repair and
working order, ordinary wear and tear excepted, and will cause such Equipment to
be used and operated in a good and workmanlike manner, in accordance with
applicable Law and in a manner which will not make void or cancelable any
insurance with respect to such Equipment. Each Debtor will promptly make or
cause to be made all repairs, replacements and other improvements to or in
connection with such Equipment which are necessary or desirable or that Secured
Party may request to such end. Each Debtor will promptly furnish to Secured
Party a statement respecting any loss or damage to any of such Equipment with an
aggregate value in excess of $50,000. Except for transportation of Equipment in
the ordinary course of business, no Debtor will allow any Equipment included
within the Collateral to be located in any jurisdiction other than those in
which is filed an effective financing statement which perfects Secured Party's
security interest hereunder in such Equipment. No Debtor will cause or permit
the removal of any item of Equipment from such Debtor's possession, control and
risk of loss, and no Debtor will sell, assign (by operation of Law or
otherwise), transfer, exchange, lease or otherwise dispose of any Equipment,
other than in connection with the following:
(i) Sale or other disposal, other than during the continuance
of an Event of Default, of any item of Equipment which is worn out or
obsolete or which has been replaced by an item of equal suitability and
value, owned by such Debtor and made subject to the security interest
under this Agreement, but which is otherwise free and clear of any
Liens, encumbrances or adverse claims, and
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(ii) Possession of Equipment by Secured Party or by a bailee
selected by Secured Party who is holding such Equipment for the benefit
of Secured Party.
No Debtor will permit any of the Collateral which constitutes Equipment to at
any time become so related to attached to, or used in connection with any
particular real property so as to become a fixture upon such real property, or
to be installed in or affixed to other goods so as to become an accession to
such other goods unless such other goods are also included in the Collateral.
(f) Certificates of Title. To the extent that there is at any time any
Collateral in which a security interest may be perfected by a notation on the
certificate of title or similar evidence of ownership of such Collateral, each
Debtor will:
(i) concurrently with the execution hereof, with respect to
any items of such Collateral with a book value in excess of $50,000 in
which such Debtor presently has any interest,
(ii) promptly after the acquisition thereof, with respect to
any items of such Collateral with a book value in excess of $50,000 in
which such Debtor hereafter acquires any interest, and
(iii) promptly upon request by Secured Party, with respect to
any other items of such Collateral,
deliver to Secured Party all such certificates of title and similar evidences of
ownership, all applications therefor, and all other documents needed or helpful
in registering Secured Party's security interest in such Collateral on such
certificates of title, other evidences of ownership, and applications and in
otherwise perfecting Secured Party's security interest in such Collateral.
ARTICLE IV. - Remedies, Powers and Authorizations
Section 4.1. Normal Provisions Concerning the Collateral.
(a) Additional Financing Statement Filings. Each Debtor hereby
authorizes Secured Party to file, without the signature of such Debtor where
permitted by Law, one or more financing or continuation statements, and
amendments thereto, relating to the Collateral. Each Debtor further agrees that
a carbon, photographic or other reproduction of this Agreement or any financing
statement describing any Collateral is sufficient as a financing statement and
may be filed in any jurisdiction by Secured Party may deem appropriate.
(b) Power of Attorney. Each Debtor hereby irrevocably appoints Secured
Party as such Debtor's attorney-in-fact and proxy, with full authority in the
place and stead of such Debtor and in the name of such Debtor or otherwise, from
time to time in Secured Party's discretion, upon the occurrence and during the
continuance of a Default, to take any action, and to execute or indorse any
instrument, certificate or notice, which Secured Party may deem necessary or
advisable to accomplish the purposes of this Agreement including any action or
instrument: (i) to obtain and adjust any insurance required to be paid to
Secured Party pursuant hereto; (ii) to ask, demand, collect, sue for, recover,
compound, receive and give acquittance and receipts for moneys due and to become
due under or in respect of any of the Collateral; (iii) to receive, indorse and
collect any drafts or other Instruments or Documents; (iv) to enforce any
obligations included among the Collateral; and (v) to file any claims or take
any action or institute any proceedings which Secured Party may deem necessary
or desirable for the collection of any of the Collateral or otherwise to
enforce, perfect, or establish the priority of the rights of such Debtor or
Secured
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Party with respect to any of the Collateral. Each Debtor hereby acknowledges
that such power of attorney and proxy are coupled with an interest, are
irrevocable, and are to be used by Secured Party.
(c) Performance by Secured Party. If any Debtor fails to perform any
agreement or obligation contained herein, Secured Party may itself perform, or
cause performance of, such agreement or obligation, and the expenses of Secured
Party incurred in connection therewith shall be payable by such Debtor under
Section 4.5.
(d) Bailees. If at any time any Debtor surrenders possession or control
of any Collateral to any warehouseman, bailee or any of such Debtor's agents or
processors, such Debtor shall, upon the request of Secured Party, notify such
warehouseman, bailee, agent or processor of Secured Party's rights hereunder and
instruct such Person to hold all such Collateral for Secured Party's account
subject to Secured Party's instructions. (No such request by Secured Party shall
be deemed a waiver of any provision hereof which was otherwise violated by such
Collateral being held by such Person prior to such instructions by such Debtor.)
(e) Collection Rights. Secured Party shall have the right at any time,
upon the occurrence and during the continuance of a Default or an Event of
Default, to notify (or to require Debtors to notify) any and all obligors under
any Receivables, General Intangibles, Instruments or other rights to payment
included among the Collateral of the assignment thereof to Secured Party under
this Agreement and to direct such obligors to make payment of all amounts due or
to become due to any Debtor thereunder directly to Secured Party and, upon such
notification and at the expense of such Debtor and to the extent permitted by
Law, to enforce collection of any such Receivables, General Intangibles,
Instruments or other rights to payment and to adjust, settle or compromise the
amount or payment thereof, in the same manner and to the same extent as such
Debtor could have done. After any Debtor receives notice that Secured Party has
given (and after Secured Party has required such Debtor to give) any notice
referred to above in this subsection:
(i) all amounts and proceeds (including instruments and
writings) received by such Debtor in respect of such Receivables,
General Intangibles, Instruments or other rights to payment shall be
received in trust for the benefit of Secured Party hereunder, shall be
segregated from other funds of such Debtor and shall be forthwith paid
over to Secured Party in the same form as so received (with any
necessary indorsement) to be, at Secured Party's discretion, either (A)
held as cash collateral and released to such Debtor upon the remedy of
all Defaults and Events of Default, or (B) if any Event of Default
shall have occurred and be continuing, applied as specified in Section
4.3, and
(ii) such Debtor will not adjust, settle or compromise the
amount or payment of any such Receivable, General Intangible,
Instrument or other right to payment or release wholly or partly any
account debtor or obligor thereof or allow any credit or discount
thereon.
Section 4.2. Event of Default Remedies. If an Event of Default shall
have occurred and be continuing, Secured Party may from time to time in its
discretion, without limitation and without notice except as expressly provided
below:
(a) exercise in respect of the Collateral, in addition to any other
rights and remedies provided for herein, under the other Obligation Documents,
or otherwise available to it, all the rights and remedies of a secured party on
default under the UCC (whether or not the UCC applies to the affected
Collateral);
(b) require each Debtor to, and each Debtor hereby agrees that it will
at its expense and upon request of Secured Party promptly, assemble all or part
of the Collateral as directed by Secured Party and
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make it (together with all books, records and information of such Debtor
relating thereto) available to Secured Party at a place to be designated by
Secured Party which is reasonably convenient to both parties;
(c) prior to the disposition of any Collateral, (i) to the extent
permitted by applicable Law, enter, with or without process of Law and without
breach of the peace, any premises where any of the Collateral is or may be
located, and without charge or liability to Secured Party seize and remove such
Collateral from such premises, (ii) have access to and use the Company's books,
records, and information relating to the Collateral, and (iii) store or transfer
any of the Collateral without charge in or by means of any storage or
transportation facility owned or leased by any Debtor, process, repair or
recondition any of the Collateral or otherwise prepare it for disposition in any
manner and to the extent Secured Party deems appropriate and, in connection with
such preparation and disposition, use without charge any copyright, trademark,
trade name, patent or technical process used by any Debtor;
(d) reduce its claim to judgment or foreclose or otherwise enforce, in
whole or in part, the security interest created hereby by any available judicial
procedure;
(e) dispose of, at its office, on the premises of any Debtor or
elsewhere, all or any part of the Collateral, as a unit or in parcels, by public
or private proceedings, and by way of one or more contracts (it being agreed
that the sale of any part of the Collateral shall not exhaust Secured Party's
power of sale, but sales may be made from time to time, and at any time, until
all of the Collateral has been sold or until the Secured Obligations have been
paid and performed in full), and at any such sale it shall not be necessary to
exhibit any of the Collateral;
(f) buy (or allow one or more Secured Party to buy) the Collateral, or
any part thereof, at any public sale;
(g) buy (or allow one or more Secured Party to buy) the Collateral, or
any part thereof, at any private sale if the Collateral is of a type customarily
sold in a recognized market or is of a type which is the subject of widely
distributed standard price quotations; and
(h) apply by appropriate judicial proceedings for appointment of a
receiver for the Collateral, or any part thereof, and each Debtor hereby
consents to any such appointment.
Each Debtor agrees that, to the extent notice of sale shall be required by Law,
at least five (5) days' notice to such Debtor of the time and place of any
public sale or the time after which any private sale is to be made shall
constitute reasonable notification. Secured Party shall not be obligated to make
any sale of Collateral regardless of notice of sale having been given. Secured
Party may adjourn any public or private sale from time to time by announcement
at the time and place fixed therefor, and such sale may, without further notice,
be made at the time and place to which it was so adjourned.
Section 4.3. Application of Proceeds. If any Event of Default shall
have occurred and be continuing, Secured Party may in its discretion apply any
cash held by Secured Party as Collateral, and any cash proceeds received by
Secured Party in respect of any sale of, collection from, or other realization
upon all or any part of the Collateral, to any or all of the following in such
order as Secured Party may elect:
(a) To the repayment of all costs and expenses, including reasonable
attorneys' fees and legal expenses, incurred by Secured Party in connection with
(i) the administration of this Agreement, (ii) the custody, preservation, use or
operation of, or the sale of, collection from, or other realization upon, any
Collateral, (iii) the exercise or enforcement of any of the rights of Secured
Party hereunder, or (iv) the failure of any Debtor to perform or observe any of
the provisions hereof;
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(b) To the payment or other satisfaction of any Liens, encumbrances, or
adverse claims upon or against any of the Collateral;
(c) To the reimbursement of Secured Party for the amount of any
obligations of any Debtor or any Other Liable Party paid or discharged by
Secured Party pursuant to the provisions of this Agreement or the other
Obligation Documents, and of any expenses of Secured Party payable by any Debtor
hereunder or under the other Obligation Documents;
(d) To the satisfaction of any other Secured Obligations;
(e) By holding the same as Collateral;
(f) To the payment of any other amounts required by applicable Law
(including any provision of the UCC); and
(g) By delivery to any Debtor or to whoever shall be lawfully entitled
to receive the same or as a court of competent jurisdiction shall direct.
Section 4.4. Deficiency. In the event that the proceeds of any sale,
collection or realization of or upon Collateral by Secured Party are
insufficient to pay all Secured Obligations and any other amounts to which
Secured Party is legally entitled, each Debtor shall be liable for the
deficiency, together with interest thereon as provided in the governing
Obligation Documents or (if no interest is so provided) at such other rate as
shall be fixed by applicable Law, together with the costs of collection and the
reasonable fees of any attorneys employed by Secured Party to collect such
deficiency.
Section 4.5. Indemnity and Expenses. In addition to, but not in
qualification or limitation of, any similar obligations under other Obligation
Documents:
(a) EACH DEBTOR WILL INDEMNIFY SECURED PARTY FROM AND AGAINST ANY AND
ALL CLAIMS, LOSSES AND LIABILITIES GROWING OUT OF OR RESULTING FROM THIS
AGREEMENT (INCLUDING ENFORCEMENT OF THIS AGREEMENT),
WHETHER OR NOT SUCH CLAIMS, LOSSES AND LIABILITIES ARE IN ANY WAY OR TO ANY
EXTENT OWED, IN WHOLE OR PART, UNDER ANY CLAIM OR THEORY OF STRICT LIABILITY, OR
ARE CAUSED BY OR ARISING OUT OF SUCH INDEMNIFIED PARTY'S OWN NEGLIGENCE,
EXCEPT TO THE EXTENT SUCH CLAIMS, LOSSES OR LIABILITIES ARE PROXIMATELY CAUSED
BY SUCH INDEMNIFIED PARTY'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
(b) Each Debtor will upon demand pay to Secured Party the amount of any
and all costs and expenses, including the fees and disbursements of Secured
Party's counsel and of any experts and agents, which Secured Party may incur in
connection with (i) the perfection and preservation of this security interest
created under this Agreement, (ii) the administration of this Agreement; (iii)
the custody, preservation, use or operation of, or the sale of, collection from,
or other realization upon, any Collateral; (iv) the exercise or enforcement of
any of the rights of Secured Party hereunder; or (v) the failure by any Debtor
to perform or observe any of the provisions hereof, except expenses resulting
from Secured Party's individual gross negligence or willful misconduct.
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Section 4.6. Non-Judicial Remedies. In granting to Secured Party the
power to enforce its rights hereunder without prior judicial process or judicial
hearing, each Debtor expressly waives, renounces and knowingly relinquishes any
legal right which might otherwise require Secured Party to enforce its rights by
judicial process. In so providing for non-judicial remedies, each Debtor
recognizes and concedes that such remedies are consistent with the usage of
trade, are responsive to commercial necessity, and are the result of a bargain
at arm's length. Nothing herein is intended, however, to prevent Secured Party
or any Debtor from resorting to judicial process at its option.
Section 4.7. Other Recourse. Each Debtor waives any right to require
Secured Party to proceed against any other Person, to exhaust any Collateral or
other security for the Secured Obligations, to have any Other Liable Party
joined with such Debtor in any suit arising out of the Secured Obligations or
this Agreement, or to pursue any other remedy in Secured Party's power. Each
Debtor further waives any and all notice of acceptance of this Agreement and of
the creation, modification, rearrangement, renewal or extension for any period
of any of the Secured Obligations of any Other Liable Party from time to time.
Each Debtor further waives any defense arising by reason of any disability or
other defense of any Other Liable Party or by reason of the cessation from any
cause whatsoever of the liability of any Other Liable Party. Until all of the
Secured Obligations shall have been paid in full, no Debtor shall have any right
to subrogation and each Debtor waives the right to enforce any remedy which
Secured Party has or may hereafter have against any Other Liable Party, and
waives any benefit of and any right to participate in any other security
whatsoever now or hereafter held by Secured Party. Each Debtor authorizes
Secured Party, without notice or demand, without any reservation of rights
against such Debtor, and without in any way affecting such Debtor's liability
hereunder or on the Secured Obligations, from time to time to (a) take or hold
any other property of any type from any other Person as security for the Secured
Obligations, and exchange, enforce, waive and release any or all of such other
property, (b) apply the Collateral or such other property and direct the order
or manner of sale thereof as Secured Party may in its discretion determine, (c)
renew, extend for any period, accelerate, modify, compromise, settle or release
any of the obligations of any Other Liable Party in respect to any or all of the
Secured Obligations or other security for the Secured Obligations, (d) waive,
enforce, modify, amend or supplement any of the provisions of any Obligation
Document with any Person other than such Debtor, and (e) release or substitute
any Other Liable Party.
Section 4.8. Limitation on Duty of Secured Party in Respect of
Collateral. Beyond the exercise of reasonable care in the custody thereof,
Secured Party shall have no duty as to any Collateral in its possession or
control or in the possession or control of any agent or bailee or as to the
preservation of rights against prior parties or any other rights pertaining
thereto. Secured Party shall be deemed to have exercised reasonable care in the
custody of the Collateral in its possession if the Collateral is accorded
treatment substantially equal to that which it accords its own property, and
shall not be liable or responsible for any loss or damage to any of the
Collateral, or for any diminution in the value thereof, by reason of the act or
omission of any warehouseman, carrier, forwarding agency, consignee or other
agent or bailee selected by Secured Party in good faith.
Section 4.9. Appointment of Collateral Agents. At any time or times, in
order to comply with any legal requirement in any jurisdiction, Secured Party
may appoint any bank or trust company or one or more other Persons, either to
act as co-agent or co-agents, jointly with Secured Party, or to act as separate
agent or agents on behalf of Secured Parties, with such power and authority as
may be necessary for the effectual operation of the provisions hereof and may be
specified in the instrument of appointment. In so doing Secured Party may, in
the name and on behalf of any Debtor, give to such co-agent or separate agent
indemnities and other protections similar to those provided in Section 4.5.
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ARTICLE V. - Miscellaneous
Section 5.1. Notices. Any notice or communication required or permitted
hereunder shall be given as provided in the Purchase Agreement.
Section 5.2. Amendments. No amendment of any provision of this
Agreement shall be effective unless it is in writing and signed by each Debtor
and Secured Party, and no waiver of any provision of this Agreement, and no
consent to any departure by any Debtor therefrom, shall be effective unless it
is in writing and signed by Secured Party, and then such waiver or consent shall
be effective only in the specific instance and for the specific purpose for
which given and to the extent specified in such writing.
Section 5.3. Preservation of Rights. No failure on the part of Secured
Party to exercise, and no delay in exercising, any right hereunder or under any
other Obligation Document shall operate as a waiver thereof; nor shall any
single or partial exercise of any such right preclude any other or further
exercise thereof or the exercise of any other right. Neither the execution nor
the delivery of this Agreement shall in any manner impair or affect any other
security for the Secured Obligations. The rights and remedies of Secured Party
provided herein and in the other Obligation Documents are cumulative and are in
addition to, and not exclusive of, any rights or remedies provided by Law or
otherwise. The rights of Secured Party under any Obligation Document against any
party thereto are not conditional or contingent on any attempt by Secured Party
to exercise any of its rights under any other Obligation Document against such
party or against any other Person.
Section 5.4. Unenforceability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or invalidity without
invalidating the remaining portions hereof or thereof or affecting the validity
or enforceability of such provision in any other jurisdiction.
Section 5.5. Survival of Agreements. All representations and warranties
of all Debtors herein, and all covenants and agreements herein shall survive the
execution and delivery of this Agreement, the execution and delivery of any
other Obligation Documents and the creation of the Secured Obligations.
Section 5.6. Other Liable Parties. Neither this Agreement nor the
exercise by Secured Party or the failure of Secured Party to exercise any right,
power or remedy conferred herein or by Law shall be construed as relieving any
Other Liable Party from liability on the Secured Obligations or any deficiency
thereon. This Agreement shall continue irrespective of the fact that the
liability of any Other Liable Party may have ceased or irrespective of the
validity or enforceability of any other Obligation Document to which any Debtor
or any Other Liable Party may be a party, and notwithstanding the
reorganization, death, incapacity or bankruptcy of any Other Liable Party, and
notwithstanding the reorganization or bankruptcy or other event or proceeding
affecting any Other Liable Party.
Section 5.7. Binding Effect and Assignment. This Agreement creates a
continuing security interest in the Collateral and (a) shall be binding on each
Debtor and its successors and permitted assigns and (b) shall inure, together
with all rights and remedies of Secured Party hereunder, to the benefit of
Secured Party and their respective successors, transferees and assigns, as
permitted by the Purchase Agreement. Without limiting the generality of the
foregoing, Secured Party may (except as otherwise provided in the Purchase
Agreement) pledge, assign or otherwise transfer any or all of their respective
rights under any or all of the Obligation Documents to any other Person, and
such other Person shall thereupon become vested with all of the benefits in
respect thereof granted to Secured Party, herein or otherwise. None of the
rights or duties of any Debtor hereunder may be assigned or otherwise
transferred without the prior written consent of Secured Party.
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Section 5.8. Termination. It is contemplated by the parties hereto that
there may be times when no Secured Obligations are outstanding, but
notwithstanding such occurrences, this Agreement shall remain valid and shall be
in full force and effect as to subsequent outstanding Secured Obligations. Upon
the satisfaction in full of the Secured Obligations, upon the termination or
expiration of the Purchase Agreement and any other commitment of Secured Party
to extend credit to Borrower, and upon written request for the termination
hereof delivered by Borrower to Secured Party, this Agreement and the security
interest created hereby shall terminate and all rights to the Collateral shall
revert to Debtors. Secured Party will thereafter, upon Debtors' request and at
Debtors' expense, (a) return to Debtors such of the Collateral in Secured
Party's possession as shall not have been sold or otherwise disposed of or
applied pursuant to the terms hereof; and (b) execute and deliver to Debtors
such documents as Debtors shall reasonably request to evidence such termination.
SECTION 5.9. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, EXCEPT AS
REQUIRED BY MANDATORY PROVISIONS OF LAW AND EXCEPT TO THE EXTENT THAT THE
PRIORITY, PERFECTION AND THE EFFECT OF PERFECTION OR NON-PERFECTION OF THE
SECURITY INTEREST CREATED HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL,
ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK.
Section 5.10. Counterparts. This Agreement may be separately executed
in any number of counterparts, all of which when so executed shall be deemed to
constitute one and the same Agreement.
Section 5.11. "Note Document". This Agreement is a "Note Document", as
defined in the Purchase Agreement, and, except as expressly provided herein to
the contrary, this Agreement is subject to all provisions of the Purchase
Agreement governing such Note Documents.
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IN WITNESS WHEREOF, each Debtor has caused this Agreement to be
executed and delivered this Agreement by its officer thereunto duly authorized,
as of the date first above written.
FUTURE PETROLEUM CORPORATION
a Utah corporation
By: /s/ B. CARL PRICE
-------------------------------------
B. Carl Price, President
FUTURE ENERGY CORPORATION
a Nevada corporation
By: /s/ B. CARL PRICE
-------------------------------------
B. Carl Price, President
FUTURE PETROLEUM CORPORATION
a Texas corporation
By: /s/ B. CARL PRICE
-------------------------------------
B. Carl Price, President
BMC DEVELOPMENT NO. 1 LIMITED PARTNERSHIP,
a Texas limited partnership
FUTURE ACQUISITION 1995, LTD.,
a Texas limited partnership
By: Future Petroleum Corporation, a Texas
corporation, General Partner
By: /s/ B. CARL PRICE
-------------------------------------
B. Carl Price, President
Address of Debtors:
2351 West Northwest Highway
Dallas, Texas 75220
Attention: Carl Price
Telecopy: 214-350-8382
-18-
<PAGE> 19
FINANCING STATEMENT
This instrument is prepared and is intended to be a Financing Statement
complying with the formal requisites therefor as set forth in the Uniform
Commercial Code.
1 The name and address of the Debtor ("Debtor") is:
Future Petroleum Corporation
a Utah corporation
2351 West Northwest Highway
Dallas, Texas 75220
Attention: Carl Price
2 The name and address of the secured parties ("Secured Party") are:
Energy Capital Investment Company PLC
c/o EnCap Investments L.C.
1100 Louisiana, Suite 3150
Houston, Texas 77002
Attention: Colin Nisbeth
EnCap Equity 1994 Limited Partnership
c/o EnCap Investments L.C.
1100 Louisiana, Suite 3150
Houston, Texas 77002
Attention: Colin Nisbeth
Gecko Booty 1994 I Limited Partnership
c/o EnCap Investments L.C.
1100 Louisiana, Suite 3150
Houston, Texas 77002
Attention: Colin Nisbeth
3 This Financing Statement covers the following types or items of
property (collectively, the "Collateral"):
All right, title and interest of Debtor in and to any and all of the following
property, whether now owned or existing or hereafter acquired or arising and
regardless of where located:
(a) all Receivables.
(b) all General Intangibles.
(c) all Documents.
(d) all Instruments.
(e) all Inventory.
(f) all Equipment.
-1-
<PAGE> 20
(g) All books and records (including customer lists, marketing
information, credit files, price lists, operating records, vendor and supplier
price lists, sales literature, computer software, computer hardware, computer
disks and tapes and other storage media, printouts and other materials and
records) of Debtor pertaining to any of the Collateral.
(h) All moneys and property of any kind of Debtor in the possession or
under the control of Secured Party.
(i) All Proceeds of any and all of the foregoing Collateral.
In each case, the foregoing shall be covered by this Agreement, whether Debtor's
ownership or other rights therein are presently held or hereafter acquired and
however Debtor's interests therein may arise or appear (whether by ownership,
security interest, claim or otherwise).
4 This Financing Statement is presented for filing to the Secretary of
State of Utah.
FUTURE PETROLEUM CORPORATION
A Utah corporation
By: /s/ B. CARL PRICE
-------------------------------------
B. Carl Price, President
-2-
<PAGE> 21
FINANCING STATEMENT
This instrument is prepared and is intended to be a Financing Statement
complying with the formal requisites therefor as set forth in the Uniform
Commercial Code.
1 The name and address of the Debtor ("Debtor") is:
Future Petroleum Corporation
a Utah corporation
2351 West Northwest Highway
Dallas, Texas 75220
Attention: Carl Price
2 The name and address of the secured parties ("Secured Party") are:
Energy Capital Investment Company PLC
c/o EnCap Investments L.C.
1100 Louisiana, Suite 3150
Houston, Texas 77002
Attention: Colin Nisbeth
EnCap Equity 1994 Limited Partnership
c/o EnCap Investments L.C.
1100 Louisiana, Suite 3150
Houston, Texas 77002
Attention: Colin Nisbeth
Gecko Booty 1994 I Limited Partnership
c/o EnCap Investments L.C.
1100 Louisiana, Suite 3150
Houston, Texas 77002
Attention: Colin Nisbeth
3 This Financing Statement covers the following types or items of
property (collectively, the "Collateral"):
All right, title and interest of Debtor in and to any and all of the following
property, whether now owned or existing or hereafter acquired or arising and
regardless of where located:
(a) all Receivables.
(b) all General Intangibles.
(c) all Documents.
(d) all Instruments.
(e) all Inventory.
(f) all Equipment.
-1-
<PAGE> 22
(g) All books and records (including customer lists, marketing
information, credit files, price lists, operating records, vendor and supplier
price lists, sales literature, computer software, computer hardware, computer
disks and tapes and other storage media, printouts and other materials and
records) of Debtor pertaining to any of the Collateral.
(h) All moneys and property of any kind of Debtor in the possession or
under the control of Secured Party.
(i) All Proceeds of any and all of the foregoing Collateral.
In each case, the foregoing shall be covered by this Agreement, whether Debtor's
ownership or other rights therein are presently held or hereafter acquired and
however Debtor's interests therein may arise or appear (whether by ownership,
security interest, claim or otherwise).
4 This Financing Statement is presented for filing to the Secretary of
State of Texas.
FUTURE PETROLEUM CORPORATION
A Utah corporation
By: /s/ B. CARL PRICE
-------------------------------------
B. Carl Price, President
-2-
<PAGE> 23
FINANCING STATEMENT
This instrument is prepared and is intended to be a Financing Statement
complying with the formal requisites therefor as set forth in the Uniform
Commercial Code.
1 The name and address of the Debtor ("Debtor") is:
Future Energy Corporation
a Nevada corporation
2351 West Northwest Highway
Dallas, Texas 75220
Attention: Carl Price
2 The name and address of the secured parties ("Secured Party") are:
Energy Capital Investment Company PLC
c/o EnCap Investments L.C.
1100 Louisiana, Suite 3150
Houston, Texas 77002
Attention: Colin Nisbeth
EnCap Equity 1994 Limited Partnership
c/o EnCap Investments L.C.
1100 Louisiana, Suite 3150
Houston, Texas 77002
Attention: Colin Nisbeth
Gecko Booty 1994 I Limited Partnership
c/o EnCap Investments L.C.
1100 Louisiana, Suite 3150
Houston, Texas 77002
Attention: Colin Nisbeth
3 This Financing Statement covers the following types or items of
property (collectively, the "Collateral"):
All right, title and interest of Debtor in and to any and all of the following
property, whether now owned or existing or hereafter acquired or arising and
regardless of where located:
(a) all Receivables.
(b) all General Intangibles.
(c) all Documents.
(d) all Instruments.
(e) all Inventory.
(f) all Equipment.
-1-
<PAGE> 24
(g) All books and records (including customer lists, marketing
information, credit files, price lists, operating records, vendor and supplier
price lists, sales literature, computer software, computer hardware, computer
disks and tapes and other storage media, printouts and other materials and
records) of Debtor pertaining to any of the Collateral.
(h) All moneys and property of any kind of Debtor in the possession or
under the control of Secured Party.
(i) All Proceeds of any and all of the foregoing Collateral.
In each case, the foregoing shall be covered by this Agreement, whether Debtor's
ownership or other rights therein are presently held or hereafter acquired and
however Debtor's interests therein may arise or appear (whether by ownership,
security interest, claim or otherwise).
4 This Financing Statement is presented for filing to the Secretary of
State of Nevada.
FUTURE ENERGY CORPORATION
A Nevada corporation
By: /s/ B. CARL PRICE
-------------------------------------
B. Carl Price, President
-2-
<PAGE> 25
FINANCING STATEMENT
This instrument is prepared and is intended to be a Financing Statement
complying with the formal requisites therefor as set forth in the Uniform
Commercial Code.
1 The name and address of the Debtor ("Debtor") is:
Future Energy Corporation
a Nevada corporation
2351 West Northwest Highway
Dallas, Texas 75220
Attention: Carl Price
2 The name and address of the secured parties ("Secured Party") are:
Energy Capital Investment Company PLC
c/o EnCap Investments L.C.
1100 Louisiana, Suite 3150
Houston, Texas 77002
Attention: Colin Nisbeth
EnCap Equity 1994 Limited Partnership
c/o EnCap Investments L.C.
1100 Louisiana, Suite 3150
Houston, Texas 77002
Attention: Colin Nisbeth
Gecko Booty 1994 I Limited Partnership
c/o EnCap Investments L.C.
1100 Louisiana, Suite 3150
Houston, Texas 77002
Attention: Colin Nisbeth
3 This Financing Statement covers the following types or items of
property (collectively, the "Collateral"):
All right, title and interest of Debtor in and to any and all of the following
property, whether now owned or existing or hereafter acquired or arising and
regardless of where located:
(a) all Receivables.
(b) all General Intangibles.
(c) all Documents.
(d) all Instruments.
(e) all Inventory.
(f) all Equipment.
-1-
<PAGE> 26
(g) All books and records (including customer lists, marketing
information, credit files, price lists, operating records, vendor and supplier
price lists, sales literature, computer software, computer hardware, computer
disks and tapes and other storage media, printouts and other materials and
records) of Debtor pertaining to any of the Collateral.
(h) All moneys and property of any kind of Debtor in the possession or
under the control of Secured Party.
(i) All Proceeds of any and all of the foregoing Collateral.
In each case, the foregoing shall be covered by this Agreement, whether Debtor's
ownership or other rights therein are presently held or hereafter acquired and
however Debtor's interests therein may arise or appear (whether by ownership,
security interest, claim or otherwise).
4 This Financing Statement is presented for filing to the Secretary of
State of Texas.
FUTURE ENERGY CORPORATION
A Nevada corporation
By: /s/ B. CARL PRICE
-------------------------------------
B. Carl Price, President
-2-
<PAGE> 27
FINANCING STATEMENT
This instrument is prepared and is intended to be a Financing Statement
complying with the formal requisites therefor as set forth in the Uniform
Commercial Code.
1 The name and address of the Debtor ("Debtor") is:
Future Petroleum Corporation
a Texas corporation
2351 West Northwest Highway
Dallas, Texas 75220
Attention: Carl Price
2 The name and address of the secured parties ("Secured Party") are:
Energy Capital Investment Company PLC
c/o EnCap Investments L.C.
1100 Louisiana, Suite 3150
Houston, Texas 77002
Attention: Colin Nisbeth
EnCap Equity 1994 Limited Partnership
c/o EnCap Investments L.C.
1100 Louisiana, Suite 3150
Houston, Texas 77002
Attention: Colin Nisbeth
Gecko Booty 1994 I Limited Partnership
c/o EnCap Investments L.C.
1100 Louisiana, Suite 3150
Houston, Texas 77002
Attention: Colin Nisbeth
3 This Financing Statement covers the following types or items of
property (collectively, the "Collateral"):
All right, title and interest of Debtor in and to any and all of the following
property, whether now owned or existing or hereafter acquired or arising and
regardless of where located:
(a) all Receivables.
(b) all General Intangibles.
(c) all Documents.
(d) all Instruments.
(e) all Inventory.
(f) all Equipment.
-1-
<PAGE> 28
(g) All books and records (including customer lists, marketing
information, credit files, price lists, operating records, vendor and supplier
price lists, sales literature, computer software, computer hardware, computer
disks and tapes and other storage media, printouts and other materials and
records) of Debtor pertaining to any of the Collateral.
(h) All moneys and property of any kind of Debtor in the possession or
under the control of Secured Party.
(i) All Proceeds of any and all of the foregoing Collateral.
In each case, the foregoing shall be covered by this Agreement, whether Debtor's
ownership or other rights therein are presently held or hereafter acquired and
however Debtor's interests therein may arise or appear (whether by ownership,
security interest, claim or otherwise).
4 This Financing Statement is presented for filing to the Secretary of
State of Texas.
FUTURE PETROLEUM CORPORATION
A Texas corporation
By: /s/ B. CARL PRICE
-------------------------------------
B. Carl Price, President
-2-
<PAGE> 29
FINANCING STATEMENT
This instrument is prepared and is intended to be a Financing Statement
complying with the formal requisites therefor as set forth in the Uniform
Commercial Code.
1 The name and address of the Debtor ("Debtor") is:
BMC Development No. 1 Limited Partnership
c/o Future Petroleum Corporation
2351 West Northwest Highway
Dallas, Texas 75220
Attention: Carl Price
2 The name and address of the secured parties ("Secured Party") are:
Energy Capital Investment Company PLC
c/o EnCap Investments L.C.
1100 Louisiana, Suite 3150
Houston, Texas 77002
Attention: Colin Nisbeth
EnCap Equity 1994 Limited Partnership
c/o EnCap Investments L.C.
1100 Louisiana, Suite 3150
Houston, Texas 77002
Attention: Colin Nisbeth
Gecko Booty 1994 I Limited Partnership
c/o EnCap Investments L.C.
1100 Louisiana, Suite 3150
Houston, Texas 77002
Attention: Colin Nisbeth
3 This Financing Statement covers the following types or items of
property (collectively, the "Collateral"):
All right, title and interest of Debtor in and to any and all of the following
property, whether now owned or existing or hereafter acquired or arising and
regardless of where located:
(a) all Receivables.
(b) all General Intangibles.
(c) all Documents.
(d) all Instruments.
(e) all Inventory.
(f) all Equipment.
-1-
<PAGE> 30
(g) All books and records (including customer lists, marketing
information, credit files, price lists, operating records, vendor and supplier
price lists, sales literature, computer software, computer hardware, computer
disks and tapes and other storage media, printouts and other materials and
records) of Debtor pertaining to any of the Collateral.
(h) All moneys and property of any kind of Debtor in the possession or
under the control of Secured Party.
(i) All Proceeds of any and all of the foregoing Collateral.
In each case, the foregoing shall be covered by this Agreement, whether Debtor's
ownership or other rights therein are presently held or hereafter acquired and
however Debtor's interests therein may arise or appear (whether by ownership,
security interest, claim or otherwise).
4 This Financing Statement is presented for filing to the Secretary of
State of Texas.
BMC DEVELOPMENT NO. 1 LIMITED PARTNERSHIP
By: Future Petroleum Corporation, general partner
By: /s/ B. CARL PRICE
-------------------------------------
B. Carl Price, President
-2-
<PAGE> 31
FINANCING STATEMENT
This instrument is prepared and is intended to be a Financing Statement
complying with the formal requisites therefor as set forth in the Uniform
Commercial Code.
1 The name and address of the Debtor ("Debtor") is:
Future Acquisition 1995, Ltd.
c/o Future Petroleum Corporation
2351 West Northwest Highway
Dallas, Texas 75220
Attention: Carl Price
2 The name and address of the secured parties ("Secured Party") are:
Energy Capital Investment Company PLC
c/o EnCap Investments L.C.
1100 Louisiana, Suite 3150
Houston, Texas 77002
Attention: Colin Nisbeth
EnCap Equity 1994 Limited Partnership
c/o EnCap Investments L.C.
1100 Louisiana, Suite 3150
Houston, Texas 77002
Attention: Colin Nisbeth
Gecko Booty 1994 I Limited Partnership
c/o EnCap Investments L.C.
1100 Louisiana, Suite 3150
Houston, Texas 77002
Attention: Colin Nisbeth
3 This Financing Statement covers the following types or items of
property (collectively, the "Collateral"):
All right, title and interest of Debtor in and to any and all of the following
property, whether now owned or existing or hereafter acquired or arising and
regardless of where located:
(a) all Receivables.
(b) all General Intangibles.
(c) all Documents.
(d) all Instruments.
(e) all Inventory.
(f) all Equipment.
-1-
<PAGE> 32
(g) All books and records (including customer lists, marketing
information, credit files, price lists, operating records, vendor and supplier
price lists, sales literature, computer software, computer hardware, computer
disks and tapes and other storage media, printouts and other materials and
records) of Debtor pertaining to any of the Collateral.
(h) All moneys and property of any kind of Debtor in the possession or
under the control of Secured Party.
(i) All Proceeds of any and all of the foregoing Collateral.
In each case, the foregoing shall be covered by this Agreement, whether Debtor's
ownership or other rights therein are presently held or hereafter acquired and
however Debtor's interests therein may arise or appear (whether by ownership,
security interest, claim or otherwise).
4 This Financing Statement is presented for filing to the Secretary of
State of Texas.
FUTURE ACQUISITION 1995, LTD.
By: Future Petroleum Corporation
By: /s/ B. CARL PRICE
-------------------------------------
B. Carl Price, President
-2-
<PAGE> 1
EXHIBIT 10.59
FIRST AMENDMENT TO SECURITY AGREEMENT
THIS FIRST AMENDMENT TO SECURITY AGREEMENT (this "Amendment") is made
as of May 1, 1998 by each of the undersigned (each individually a "Debtor" and
collectively, "Debtors"), in favor of Energy Capital Investment Company PLC, an
English investment company, EnCap Equity 1994 Limited Partnership, a Texas
limited partnership, and Gecko Booty 1994 I Limited Partnership, a Texas
limited partnership (collectively, "Secured Party").
RECITALS:
1. Future Petroleum Corporation, a Utah corporation ("Buyer") executed
those certain Promissory Notes dated November 25, 1997, payable to the
order of Secured Party in the aggregate principal amount of
$6,600,000, which were renewed, extended and increased, but not
novated or extinguished, by those certain Renewal Promissory Notes of
even date herewith, payable to the order of Secured Party in the
aggregate principal amount of $7,260,000 (such promissory notes, as
from time to time amended, and all promissory notes given in
substitution, renewal or extension therefor or thereof, in whole or in
part, collectively, the "Notes")
2. The Notes were executed pursuant to (i) a Purchase and Sale Agreement
dated November 25, 1997, (as amended, supplemented or restated, the
"November 1997 Purchase Agreement"), by and between Buyer and Secured
Party and (ii) a Purchase and Sale Agreement dated April 30, 1998 (as
amended, supplemented or restated, the "May 1998 Purchase Agreement"),
by and between Buyer, Energy Capital Investment Company PLC, EnCap
Equity 1994 Limited Partnership and NCI Enterprises, Inc.
3. Pursuant to the November 1997 Purchase Agreement, Debtors gave to
Secured Party a Security Agreement dated November 25, 1997 (the
"Original Agreement"), pursuant to which Debtors granted to Secured
Party a security interest in the Collateral as defined therein.
4. Debtors and Secured Party desire to amend the Original Agreement as
expressly set forth herein.
NOW, THEREFORE, in consideration of the premises, of the benefits
which will inure to Debtors from Secured Party' extension of credit to Buyer
under the Notes, and of Ten Dollars and other good and valuable consideration,
the receipt and sufficiency of all of which are hereby acknowledged, and in
order to induce Secured Party to extend credit under the Notes, Debtors hereby
agrees with Secured Party, as follows:
ARTICLE I - Definitions and References
Section 1.1 Terms Defined in the Original Agreement. Unless the
context otherwise requires or unless otherwise expressly defined herein, the
terms defined in the Original Agreement shall have the same meanings whenever
used in this Amendment.
Section 1.2 Other Defined Terms. Unless the context otherwise
requires, the following terms when used in this Amendment shall have the
meanings assigned to them in this Section 1.2.
"Amendment" means this First Amendment to Security Agreement.
1
<PAGE> 2
"Security Agreement" means the Original Agreement, as amended
by this First Amendment to Security Agreement.
ARTICLE II - Amendments
Section 2.1 Notes. The definition of "Notes" in the Original
Agreement is hereby amended to include those certain Renewal Promissory Notes
of even date herewith by Buyer, payable to the order of Secured Party in the
aggregate principal amount of $7,260,000, given in renewal, extension and
increase, but not novation or extinguishment, of the Notes as defined in the
Original Agreement, as from time to time amended, and all promissory notes
given in substitution, renewal or extension therefor or thereof, in whole or in
part.
Section 2.2 Purchase Agreement. The definition of "Purchase
Agreement" in the Original Agreement is hereby amended to include the November
1997 Purchase Agreement and the May 1998 Purchase Agreement.
Section 2.3 Grant and Re-Grant of Security Interest. As collateral
security for all of the Secured Obligations, each Debtor hereby pledges and
assigns, and re-pledges and re-assigns, to Secured Party and grants and
re-grants to Secured Party a continuing security interest, for the benefit of
Lenders, in and to all right, title and interest of each Debtor in and to any
and all of the Collateral, whether now owned or existing or hereafter acquired
or arising and regardless of where located.
ARTICLE III -- Miscellaneous
Section 3.1. Ratification of Security Agreement. The Original
Agreement as hereby amended is hereby ratified and confirmed in all respects.
Any reference to the Security Agreement in any Note Document shall be deemed to
refer to this Amendment also, and any reference in any Note Document to any
other document or instrument amended, renewed, extended or otherwise affected
by this Amendment shall also refer to this Amendment. The execution, delivery
and effectiveness of this Amendment shall not operate as a waiver of any right,
power or remedy of Secured Party under the Security Agreement or any other Note
Document nor constitute a waiver of any provision of the Security Agreement or
any other Note Document.
Section 3.2. Survival of Agreements. Debtors hereby represent and
warrant that all representations and warranties contained in the Original
Agreement are true and correct as of the date hereof. All representations,
warranties, covenants and agreements of Debtors herein shall survive the
execution and delivery of this Amendment and the performance hereof, including
without limitation the extension of credit pursuant to the Purchase Agreement,
and shall further survive until all of the Obligations are paid in full. All
statements and agreements contained in any certificate or instrument delivered
by Debtors hereunder or under the Security Agreement to Secured Party shall be
deemed to constitute representations and warranties by, or agreements and
covenants of, Debtors under this Amendment and under the Security Agreement.
Section 3.3. Documents. This Amendment is a Note Document, and all
provisions in the Security Agreement pertaining to Note Documents apply hereto.
Section 3.4. Counterparts. This Amendment may be separately executed
in counterparts and by the different parties hereto in separate counterparts,
each of which when so executed shall be deemed to constitute one and the same
Amendment.
2
<PAGE> 3
IN WITNESS WHEREOF, each Debtor has caused this Amendment to be
executed and delivered this Amendment by its officer thereunto duly authorized,
as of the date first above written.
FUTURE PETROLEUM CORPORATION,
a Utah corporation
By: /s/ B. CARL PRICE
----------------------------------------------------
B. Carl Price, President
FUTURE ENERGY CORPORATION,
a Nevada corporation
By: /s/ B. CARL PRICE
----------------------------------------------------
B. Carl Price, President
FUTURE PETROLEUM CORPORATION,
a Texas corporation
By: /s/ B. CARL PRICE
----------------------------------------------------
B. Carl Price, President
BMC DEVELOPMENT NO. 1 LIMITED PARTNERSHIP,
a Texas limited partnership
FUTURE ACQUISITION 1995, LTD.,
a Texas limited partnership
By: Future Petroleum Corporation,
a Texas corporation, General Partner
By: /s/ B. CARL PRICE
----------------------------------------------------
B. Carl Price, President
3
<PAGE> 1
EXHIBIT 10.60
GUARANTY
THIS GUARANTY dated as of November 25, 1997 by each of the undersigned
(collectively, "Guarantors"), is in favor of ENERGY CAPITAL INVESTMENT COMPANY
PLC, an English investment company, ENCAP EQUITY 1994 LIMITED PARTNERSHIP, a
Texas limited partnership, and GECKO BOOTY 1994 I LIMITED PARTNERSHIP
(collectively, "Sellers").
RECITALS:
1. Future Petroleum Corporation, a Utah corporation ("Buyer") has executed
those certain promissory notes of even date herewith, payable to the
order of Sellers in the aggregate principal amount of $6,600,000 (such
promissory notes, as from time to time amended, and all promissory
notes given in substitution, renewal or extension therefor or thereof,
in whole or in part, collectively, the "Notes").
2. The Notes were executed pursuant to a Purchase and Sale Agreement dated
November 25, 1997 (the "Purchase Agreement"), by and between Buyer and
Sellers, pursuant to which Buyer has agreed to purchase from Sellers
all of the limited partnership interests in BMC Development No. 1
Limited Partnership and Future Acquisition 1995, Ltd., each a Texas
limited partnership (together with their successors, each a
"Partnership"), and all of the assets of Gecko Booty 1994 I Limited
Partnership, and pursuant to which Sellers have agreed to extend credit
to Buyer under the Notes to consummate such purchase.
3. It is a condition precedent to Sellers' obligation to extend credit to
Buyer pursuant to the Purchase Agreement that Guarantors shall execute
and deliver to Sellers a satisfactory guaranty of Buyer's obligations
under the Notes and the Purchase Agreement.
4. Buyer owns directly or indirectly all of the issued and outstanding
shares of capital stock or partnership interests in each Guarantor.
5. Buyer, Guarantors, and the other direct and indirect subsidiaries of
Buyer are mutually dependent on each other in the conduct of their
respective businesses under a holding company structure, with the
credit needed from time to time by each often being provided by another
or by means of financing obtained by one such affiliate with the
support of the others for their mutual benefit and the ability of each
to obtain such financing being dependent on the successful operations
of the others.
6. The board of directors of each Guarantor that is a corporation and the
general partner of each Guarantor that is a limited partnership has
determined that such Guarantor's execution, delivery and performance of
this Guaranty may reasonably be
1
<PAGE> 2
expected to benefit such Guarantor, directly or indirectly, and are in
the best interests of such Guarantor.
NOW, THEREFORE, in consideration of the premises, of the benefits which
will inure to Guarantors from Sellers' extension of credit to Buyer under the
Notes, and of Ten Dollars and other good and valuable consideration, the receipt
and sufficiency of all of which are hereby acknowledged, and in order to induce
Sellers to extend credit under the Notes, each Guarantor hereby jointly and
severally agrees with Sellers, as follows:
AGREEMENTS
Section 1. Definitions. Reference is hereby made to the Purchase
Agreement for all purposes. All terms used in this Guaranty which are defined in
the Purchase Agreement and not otherwise defined herein shall have the same
meanings when used herein. All references herein to any Obligation Document,
Note Document, or other document or instrument refer to the same as from time to
time amended, supplemented or restated. As used herein the following terms shall
have the following meanings:
"Obligations" means collectively all of the indebtedness, obligations,
and undertakings which are guaranteed by Guarantors and described in subsections
(a) and (b) of Section 2.
"Obligation Documents" means this Guaranty, the Notes, the Purchase
Agreement, the Note Documents, all other documents and instruments under, by
reason of which, or pursuant to which any or all of the Obligations are
evidenced, governed, secured, or otherwise dealt with, and all other documents,
instruments, agreements, certificates, legal opinions and other writings
heretofore or hereafter delivered in connection herewith or therewith.
"Obligors" means Buyer, Guarantors and any other endorsers, guarantors
or obligors, primary or secondary, of any or all of the Obligations.
"Security" means any rights, properties, or interests of Sellers, under
the Obligation Documents or otherwise, which provide recourse or other benefits
to Sellers in connection with the Obligations or the non-payment or
non-performance thereof, including collateral (whether real or personal,
tangible or intangible) in which Sellers have rights under or pursuant to any
Obligation Documents, guaranties of the payment or performance of any
Obligation, bonds, surety agreements, keep-well agreements, letters of credit,
rights of subrogation, rights of offset, and rights pursuant to which other
claims are subordinated to the Obligations.
2
<PAGE> 3
Section 2. Guaranty.
(a) Each Guarantor hereby irrevocably, absolutely, and unconditionally
guarantees to each Seller the prompt, complete, and full payment when due, and
no matter how the same shall become due, of:
(i) the Notes, including all principal, all interest thereon
and all other sums payable thereunder; and
(ii) All other sums payable under the other Obligation
Documents, whether for principal, interest, fees or otherwise.
Without limiting the generality of the foregoing, each Guarantor's liability
hereunder shall extend to and include all post-petition interest, expenses, and
other duties and liabilities of Buyer described above in this subsection (a), or
below in the following subsection (b), which would be owed by Buyer but for the
fact that they are unenforceable or not allowable due to the existence of a
bankruptcy, reorganization, or similar proceeding involving Buyer.
(b) Each Guarantor hereby irrevocably, absolutely, and unconditionally
guarantees to each Seller the prompt, complete and full performance, when due,
and no matter how the same shall become due, of all obligations and undertakings
of Buyer to such Seller under, by reason of, or pursuant to any of the
Obligation Documents.
(c) If Buyer shall for any reason fail to pay any Obligation, as and
when such Obligation shall become due and payable, whether at its stated
maturity, as a result of the exercise of any power to accelerate, or otherwise,
each Guarantor will, forthwith upon demand by Sellers, pay such Obligation in
full to the Seller to whom such Obligation is owed. If Buyer shall for any
reason fail to perform promptly any Obligation, each Guarantor will, forthwith
upon demand by Sellers, cause such Obligation to be performed or, if specified
by Sellers, provide sufficient funds, in such amount and manner as Sellers shall
in good faith determine, for the prompt, full and faithful performance of such
Obligation by Sellers or such other Person as Sellers shall designate.
(d) If either Buyer or any Guarantor fails to pay or perform any
Obligation as described in the immediately preceding subsections (a), (b), or
(c) each Guarantor will incur the additional obligation to pay to Sellers, and
each Guarantor will forthwith upon demand by Sellers pay to Sellers, the amount
of any and all expenses, including fees and disbursements of Sellers' counsel
and of any experts or agents retained by Sellers, which Sellers may incur as a
result of such failure.
(e) As between Guarantors and Sellers, this Guaranty shall be
considered a primary and liquidated liability of each Guarantor.
(f) Guarantors and Sellers (by their acceptance hereof), hereby confirm
that it is their intention that the guarantee hereunder not constitute a
fraudulent transfer or fraudulent conveyance for purposes of any federal or
state law. To effectuate the foregoing intention, Guarantors and Sellers (by
their acceptance hereof) hereby irrevocably agree and understand that,
notwithstanding any other provision of this
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Guaranty, the liability of each Guarantor hereunder shall be limited to the
maximum amount of liability that can be incurred without rendering this
Guaranty, as it relates to such Guarantor, voidable under applicable law
relating to fraudulent conveyances or fraudulent transfers, and not for any
greater amount. Subject to the foregoing limitations, the obligations and duties
of Guarantors hereunder are their joint and several obligations.
Section 3. Unconditional Guaranty.
(a) No action which any Seller may take or omit to take in connection
with any of the Obligation Documents, any of the Obligations (or any other
indebtedness owing by Buyer to any Seller), or any Security, and no course of
dealing of any Seller with any Obligor or any other Person, shall release or
diminish any Guarantor's obligations, liabilities, agreements or duties
hereunder, affect this Guaranty in any way, or afford any Guarantor any recourse
against any Seller, regardless of whether any such action or inaction may
increase any risks to or liabilities of any Seller or any Obligor or increase
any risk to or diminish any safeguard of any Security. Without limiting the
foregoing, each Guarantor hereby expressly agrees that Sellers may, from time to
time, without notice to or the consent of any Guarantor, do any or all of the
following:
(i) Enter into amendments, changes or modifications, in whole
or in part, any one or more of the Obligation Documents, and give or
refuse to give any waivers or other indulgences with respect thereto.
(ii) Neglect, delay, fail, or refuse to take or prosecute any
action for the collection or enforcement of any of the Obligations, to
foreclose or take or prosecute any action in connection with any
Security or Obligation Document, to bring suit against any Obligor or
any other Person, or to take any other action concerning the
Obligations or the Obligation Documents.
(iii) Accelerate, change, rearrange, extend, or renew the
time, rate, terms, or manner for payment or performance of any one or
more of the Obligations (whether for principal, interest, fees,
expenses, indemnifications, affirmative or negative covenants, or
otherwise).
(iv) Compromise or settle any unpaid or unperformed Obligation
or any other obligation or amount due or owing, or claimed to be due or
owing, under any one or more of the Obligation Documents.
(v) Take, exchange, amend, eliminate, surrender, release, or
subordinate any or all Security for any or all of the Obligations,
accept additional or substituted Security therefor, and perfect or fail
to perfect Sellers' rights in any or all Security.
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(vi) Discharge, release, substitute or add Obligors.
(vii) Apply all monies received from Obligors or others, or
from any Security for any of the Obligations, as Sellers may determine
to be in their best interest, without in any way being required to
marshall Security or assets or to apply all or any part of such monies
upon any particular Obligations.
(b) No action or inaction of any Obligor or any other Person, and no
change of law or circumstances, shall release or diminish any Guarantor's
obligations, liabilities, agreements, or duties hereunder, affect this Guaranty
in any way, or afford any Guarantor any recourse against any Seller. Without
limiting the foregoing, the obligations, liabilities, agreements, and duties of
Guarantors under this Guaranty shall not be released, diminished, impaired,
reduced, or affected by the occurrence of any or all of the following from time
to time, even if occurring without notice to or without the consent of any
Guarantor:
(i) Any voluntary or involuntary liquidation, dissolution,
sale of all or substantially all assets, marshalling of assets or
liabilities, receivership, conservatorship, assignment for the benefit
of creditors, insolvency, bankruptcy, reorganization, arrangement, or
composition of any Obligor or any other proceedings involving any
Obligor or any of the assets of any Obligor under laws for the
protection of debtors, or any discharge, impairment, modification,
release, or limitation of the liability of, or stay of actions or lien
enforcement proceedings against, any Obligor, any properties of any
Obligor, or the estate in bankruptcy of any Obligor in the course of or
resulting from any such proceedings.
(ii) The failure by any Seller to file or enforce a claim in
any proceeding described in the immediately preceding subsection (i) or
to take any other action in any proceeding to which any Obligor is a
party.
(iii) The release by operation of law of any Obligor from any
of the Obligations or any other obligations to any Seller.
(iv) The invalidity, deficiency, illegality, or
unenforceability of any of the Obligations or the Obligation Documents,
in whole or in part, any bar by any statute of limitations or other law
of recovery on any of the Obligations, or any defense or excuse for
failure to perform on account of force majeure, act of God, casualty,
impossibility, impracticability, or other defense or excuse whatsoever.
(v) The failure of any Obligor or any other Person to sign any
guaranty or other instrument or agreement within the contemplation of
any Obligor or any Seller.
(vi) The fact that any Guarantor may have incurred directly
part of the Obligations or is otherwise primarily liable therefor.
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(vii) Without limiting any of the foregoing, any fact or event
(whether or not similar to any of the foregoing) which in the absence
of this provision would or might constitute or afford a legal or
equitable discharge or release of or defense to a guarantor or surety
other than the full and final payment and performance of the
Obligations.
(c) Sellers may invoke the benefits of this Guaranty before pursuing
any remedies against any Obligor or any other Person and before proceeding
against any Security now or hereafter existing for the payment or performance of
any of the Obligations. Sellers may maintain an action against any Guarantor on
this Guaranty without joining any other Obligor therein and without bringing a
separate action against any other Obligor.
(d) If any payment to any Seller by any Obligor is held to constitute a
preference or a voidable transfer under applicable state or federal laws, or if
for any other reason any Seller is required to refund such payment to the payor
thereof or to pay the amount thereof to any other Person, such payment to such
Seller shall not constitute a release of any Guarantor from any liability
hereunder, and each Guarantor agrees to pay such amount to such Seller on demand
and agrees and acknowledges that this Guaranty shall continue to be effective or
shall be reinstated, as the case may be, to the extent of any such payment or
payments. Any transfer by subrogation which is made as contemplated in Section 6
prior to any such payment or payments shall (regardless of the terms of such
transfer) be automatically voided upon the making of any such payment or
payments, and all rights so transferred shall thereupon revert to and be vested
in Sellers.
(e) This is a continuing guaranty and shall apply to and cover all
Obligations and renewals and extensions thereof and substitutions therefor from
time to time.
Section 4. Waiver. Each Guarantor hereby waives, with respect to the
Obligations, this Guaranty, and the other Obligation Documents:
(a) notice of the incurrence of any Obligation by Buyer, and notice of
any kind concerning the assets, liabilities, financial condition,
creditworthiness, businesses, prospects, or other affairs of Buyer (it being
understood and agreed that: (i) each Guarantor shall take full responsibility
for informing itself of such matters, (ii) neither Seller shall have any
responsibility of any kind to inform any Guarantor of such matters, and (iii)
Sellers are hereby authorized to assume that each Guarantor, by virtue of its
relationships with Buyer which are independent of this Guaranty, has full and
complete knowledge of such matters whenever Sellers extend credit to Buyer or
take any other action which may change or increase any Guarantor's liabilities
or losses hereunder).
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(b) notice that any Seller, any Obligor, or any other Person has taken
or omitted to take any action under any Obligation Document or any other
agreement or instrument relating thereto or relating to any Obligation.
(c) notice of acceptance of this Guaranty.
(d) demand, presentment for payment, and notice of demand, dishonor,
nonpayment, or nonperformance.
(e) notice of intention to accelerate, notice of acceleration, protest,
notice of protest, notice of any exercise of remedies (as described in the
following Section 5 or otherwise), and all other notices of any kind whatsoever.
Section 5. Exercise of Remedies. Each Seller shall have the right to
enforce, from time to time, in any order and at such Seller's sole discretion,
any rights, powers and remedies which such Seller may have under the Obligation
Documents or otherwise, including judicial foreclosure, the exercise of rights
of power of sale, the taking of a deed or assignment in lieu of foreclosure, the
appointment of a receiver to collect rents, issues and profits, the exercise of
remedies against personal property, or the enforcement of any assignment of
leases, rentals, oil or gas production, or other properties or rights, whether
real or personal, tangible or intangible; and each Guarantor shall be liable to
each Seller hereunder for any deficiency resulting from the exercise by any
Seller of any such right or remedy even though any rights which any Guarantor
may have against Buyer or others may be destroyed or diminished by exercise of
any such right or remedy. No failure on the part of any Seller to exercise, and
no delay in exercising, any right hereunder or under any other Obligation
Document shall operate as a waiver thereof; nor shall any single or partial
exercise of any right preclude any other or further exercise thereof or the
exercise of any other right. The rights, powers and remedies of each Seller
provided herein and in the other Obligation Documents are cumulative and are in
addition to, and not exclusive of, any other rights, powers or remedies provided
by law or in equity. The rights of each Seller hereunder are not conditional or
contingent on any attempt by any Seller to exercise any of its rights under any
other Obligation Document against any Obligor or any other Person.
Section 6. Limited Subrogation. Until all of the Obligations have been
paid and performed in full, no Guarantor shall have any right to exercise any
right of subrogation, reimbursement, indemnity, exoneration, contribution or any
other claim which it may now or hereafter have against or to any Obligor or any
Security in connection with this Guaranty, and each Guarantor hereby waives any
rights to enforce any remedy which such Guarantor may have against Buyer and any
right to participate in any Security until such time. If any amount shall be
paid to any Guarantor on account of any such subrogation or other rights, any
such other remedy, or any Security at any time when all of the Obligations and
all other expenses guaranteed pursuant hereto
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shall not have been paid in full, such amount shall be held in trust for the
benefit of Sellers, shall be segregated from the other funds of such Guarantor
and shall forthwith be paid over to Sellers to be held by Sellers as collateral
for, or then or at any time thereafter applied in whole or in part by Sellers
against, all or any portion of the Obligations, whether matured or unmatured, in
such order as Sellers shall elect. If any Guarantor shall make payment to
Sellers of all or any portion of the Obligations and if all of the Obligations
shall be finally paid in full, Sellers will, at such Guarantor's request and
expense, execute and deliver to such Guarantor (without recourse, representation
or warranty) appropriate documents necessary to evidence the transfer by
subrogation to such Guarantor of an interest in the Obligations resulting from
such payment by such Guarantor; provided that such transfer shall be subject to
Section 3(d) above and that without the consent of Sellers (which Sellers may
withhold in its discretion) no Guarantor shall have any right to be subrogated
to any claim or right against any Obligor which has become owned by any Seller,
whose ownership has otherwise changed in the course of enforcement of the
Obligation Documents, or which Sellers otherwise have released or wish to
release from its Obligations.
Section 7. Successors and Assigns. No Guarantor's rights or obligations
hereunder may be assigned or delegated, but this Guaranty and such obligations
shall pass to and be fully binding upon the successors of each Guarantor, as
well as each Guarantor. This Guaranty shall apply to and inure to the benefit of
Sellers and their successors or assigns. Without limiting the generality of the
immediately preceding sentence, each Seller may in compliance with the Note
Documents assign, grant a participation in, or otherwise transfer any Obligation
held by it or any portion thereof, and each Seller may assign or otherwise
transfer its rights or any portion thereof under any Obligation Document, to any
other Person, and such other Person shall thereupon become vested with all of
the benefits in respect thereof granted to such Seller hereunder unless
otherwise expressly provided by such Seller in connection with such assignment
or transfer.
Section 8. Subordination and Offset. Each Guarantor hereby subordinates
and makes inferior to the Obligations any and all indebtedness now or at any
time hereafter owed by Buyer to such Guarantor. Each Guarantor agrees that after
the occurrence of any Default it will neither permit Buyer to repay such
indebtedness or any part thereof nor accept payment from Buyer of such
indebtedness or any part thereof without the prior written consent of Sellers.
If any Guarantor receives any such payment without the prior written consent of
Sellers, the amount so paid shall be held in trust for the benefit of Sellers,
shall be segregated from the other funds of such Guarantor, and shall forthwith
be paid over to Sellers to be held by Sellers as collateral for, or then or at
any time thereafter applied in whole or in part by Sellers against, all or any
portions of the Obligations, whether matured or unmatured, in such order as
Sellers shall elect. Each Guarantor hereby grants to each Seller a right of
offset to secure the payment of the Obligations and such Guarantor's obligations
and
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liabilities hereunder, which right of offset shall be upon any and all monies,
securities and other property (and the proceeds therefrom) of such Guarantor now
or hereafter held or received by or in transit to any Seller from or for the
account of such Guarantor, whether for safekeeping, custody, pledge,
transmission, collection or otherwise, and also upon any and all deposits
(general or special), credits and claims of such Guarantor at any time existing
against any Seller. Upon the occurrence of any Event of Default, each Seller is
hereby authorized at any time and from time to time, without notice to any
Guarantor, to offset, appropriate and apply any and all items hereinabove
referred to against the Obligations and such Guarantor's obligations and
liabilities hereunder irrespective of whether or not such Seller shall have made
any demand under this Guaranty and although such obligations and liabilities may
be contingent or unmatured. Each Seller agrees promptly to notify any Guarantor
after any such offset and application made by such Seller, provided that the
failure to give such notice shall not affect the validity of such offset and
application. The rights of each Seller under this section are in addition to,
and shall not be limited by, any other rights and remedies (including other
rights of offset) which Sellers may have.
Section 9. Representations and Warranties. Each Guarantor hereby
represents and warrants as follows:
(a) The Recitals at the beginning of this Guaranty are true and correct
in all respects.
(b) Such Guarantor is duly organized, validly existing and in good
standing under the laws of the state of its organization as set forth on the
signature pages hereto; and such Guarantor has all requisite power and authority
to execute, deliver and perform this Guaranty.
(c) The execution, delivery and performance by such Guarantor of this
Guaranty have been duly authorized by all necessary action and do not and will
not contravene its organizational documents.
(d) The execution, delivery and performance by such Guarantor of this
Guaranty do not and will not contravene any law or governmental regulation or
any contractual restriction binding on or affecting such Guarantor or any of its
Affiliates or properties, and do not and will not result in or require the
creation of any lien, security interest or other charge or encumbrance upon or
with respect to any of its properties.
(e) No authorization or approval or other action by, and no notice to
or filing with, any governmental authority or other regulatory body or third
party is required for the due execution, delivery and performance by such
Guarantor of this Guaranty.
(f) This Guaranty is a legal, valid and binding obligation of each
Guarantor, enforceable against each Guarantor in accordance with
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its terms except as limited by bankruptcy, insolvency or similar laws of general
application relating to the enforcement of creditors' rights.
(g) There is no action, suit or proceeding pending or, to the knowledge
of such Guarantor, threatened against or otherwise affecting any Guarantor
before any court, arbitrator or governmental department, commission, board,
bureau, agency or instrumentality which may materially and adversely affect any
Guarantor's financial condition or its ability to perform its obligations
hereunder.
(h) The direct or indirect value of the consideration received and to
be received by such Guarantor in connection herewith is reasonably worth at
least as much as the liability and obligations of such Guarantor hereunder, and
the incurrence of such liability and obligations in return for such
consideration may reasonably be expected to benefit such Guarantor, directly or
indirectly.
(i) Such Guarantor is not "insolvent" on the date hereof (that is, the
sum of such Guarantor's absolute and contingent liabilities, including the
Obligations, does not exceed the fair market value of such Guarantor's assets).
Section 10. No Oral Change. No amendment of any provision of this
Guaranty shall be effective as to any Guarantor unless it is in writing and
signed by such Guarantor and Sellers, and no waiver of any provision of this
Guaranty, and no consent to any departure by any Guarantor therefrom, shall be
effective unless it is in writing and signed by Sellers, and then such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given.
Section 11. Invalidity of Particular Provisions. If any term or
provision of this Guaranty shall be determined to be illegal or unenforceable
all other terms and provisions hereof shall nevertheless remain effective and
shall be enforced to the fullest extent permitted by applicable law.
Section 12. Headings and References. The headings used herein are for
purposes of convenience only and shall not be used in construing the provisions
hereof. The words "this Guaranty," "this instrument," "herein," "hereof,"
"hereby" and words of similar import refer to this Guaranty as a whole and not
to any particular subdivision unless expressly so limited. The phrases "this
section" and "this subsection" and similar phrases refer only to the
subdivisions hereof in which such phrases occur. The word "or" is not exclusive,
and the word "including" (in its various forms) means "including without
limitation". Pronouns in masculine, feminine and neuter genders shall be
construed to include any other gender, and words in the singular form shall be
construed to include the plural and vice versa, unless the context otherwise
requires.
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Section 13. Term. This Guaranty shall be irrevocable until all of the
Obligations have been completely and finally paid and performed, no Seller has
any obligation to extend credit to Buyer, and all obligations and undertakings
of Buyer under, by reason of, or pursuant to the Obligation Documents have been
completely performed, and this Guaranty is thereafter subject to reinstatement
as provided in Section 3(d). All extensions of credit and financial
accommodations heretofore or hereafter made by Sellers to Buyer shall be
conclusively presumed to have been made in acceptance hereof and in reliance
hereon.
Section 14. Notices. Any notice or communication required or permitted
hereunder shall be given as provided in the Purchase Agreement.
Section 15. Limitation on Interest. Sellers and Guarantors intend to
contract in strict compliance with applicable usury law from time to time in
effect, and the provisions of the Notes limiting the interest for which any
Guarantor is obligated are expressly incorporated herein by reference.
Section 16. Note Document. This Guaranty is a Note Document, as defined
in the Purchase Agreement, and is subject to the provisions of the Purchase
Agreement governing Note Documents. Each Guarantor hereby ratifies, confirms and
approves the Purchase Agreement, the Notes and the other Note Documents and, in
particular, any provisions thereof which relate to such Guarantor.
Section 17. Counterparts. This Guaranty may be executed in any number
of counterparts, each of which when so executed shall be deemed to constitute
one and the same Guaranty.
Section 18. GOVERNING LAW. THIS GUARANTY IS TO BE PERFORMED IN THE
STATE OF TEXAS AND SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE
WITH THE LAWS OF SUCH STATE WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
EACH GUARANTOR HEREBY IRREVOCABLY SUBMITS ITSELF TO THE NON-EXCLUSIVE
JURISDICTION OF THE STATE AND FEDERAL COURTS OF SUCH STATE AND AGREES AND
CONSENTS THAT SERVICE OF PROCESS MAY BE MADE UPON IT IN ANY LEGAL PROCEEDING
RELATING HERETO BY ANY MEANS ALLOWED UNDER TEXAS OR FEDERAL LAW.
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IN WITNESS WHEREOF, each Guarantor has executed and delivered this
Guaranty as of the date first written above.
FUTURE ENERGY CORPORATION,
a Nevada corporation
By: /s/ B. CARL PRICE
------------------------------------------
B. Carl Price, President
FUTURE PETROLEUM CORPORATION,
a Texas corporation
By: /s/ B. CARL PRICE
------------------------------------------
B. Carl Price, President
BMC DEVELOPMENT NO. 1 LIMITED PARTNERSHIP,
a Texas limited partnership
FUTURE ACQUISITION 1995, LTD.,
a Texas limited partnership
By: Future Petroleum Corporation,
a Texas corporation, General Partner
By: /s/ B. CARL PRICE
------------------------------------------
B. Carl Price, President
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EXHIBIT 10.61
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (this "Agreement") is made as of November 25,
1997, by each of the undersigned (each individually a "Pledgor" and
collectively, "Pledgors"), in favor of Energy Capital Investment Company PLC, an
English investment company, EnCap Equity 1994 Limited Partnership, a Texas
limited partnership, and Gecko Booty 1994 I Limited Partnership, a Texas limited
partnership (collectively, "Secured Party").
RECITALS:
1. Future Petroleum Corporation, a Utah corporation ("Buyer") has executed
those certain promissory notes of even date herewith, payable to the
order of Secured Party in the aggregate principal amount of $6,600,000
(such promissory notes, as from time to time amended, and all
promissory notes given in substitution, renewal or extension therefor
or thereof, in whole or in part, collectively, the "Notes").
2. The Notes were executed pursuant to a Purchase and Sale Agreement dated
November 25, 1997 (the "Purchase Agreement"), by and between Buyer and
Secured Party, pursuant to which Buyer has agreed to purchase from
Secured Party all of the limited partnership interests in each of BMC
Development No. 1 Limited Partnership and Future Acquisition 1995,
Ltd., each a Texas limited partnership (together with their successors,
each a "Partnership"), and all of the assets of Gecko Booty 1994 I
Limited Partnership, and pursuant to which Secured Party has agreed to
extend credit to Buyer under the Notes to consummate such purchase.
3. Pursuant to the Purchase Agreement, each Partnership, Future Energy
Corporation, a Nevada corporation ("Future Nevada"), and Future
Petroleum Corporation, a Texas corporation ("Future Texas"), each a
wholly-owned Subsidiary of Buyer and the sole limited and general
partners of each Partnership, respectively, are concurrently herewith
giving to Secured Party a Guaranty of even date herewith (as from time
to time amended, supplemented or restated, the "Guaranty") of all of
the indebtedness of Buyer under the Purchase Agreement and the Notes.
4. It is a condition precedent to Secured Party's obligation to extend
credit to Buyer pursuant to the Purchase Agreement that Pledgors shall
execute and deliver to Secured Party a satisfactory pledge agreement
pledging the capital stock of Future Nevada and Future Texas and the
partnership interests in the Partnerships to secure Pledgors'
obligations under the Purchase Agreement, the Notes and the Guaranty.
5. Buyer owns directly (i) all of the issued and outstanding shares of
capital stock of Future Nevada, which in turn owns a 99% limited
partnership interest in each Partnership, and (ii) all of the issued
and outstanding shares of capital stock of Future Texas, which in turn
owns a 1% general partnership interest in each Partnership.
6. Buyer, Future Nevada, Future Texas and the other direct and indirect
subsidiaries of Buyer are mutually dependent on each other in the
conduct of their respective businesses under a holding company
structure, with the credit needed from time to time by each often being
provided by another or by means of financing obtained by one such
affiliate with the support of the others for their mutual benefit and
the ability of each to obtain such financing being dependent on the
successful operations of the others.
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7. The board of directors of each Pledgor has determined that such
Pledgor's execution, delivery and performance of this Agreement may
reasonably be expected to benefit such Pledgor, directly or indirectly,
and are in the best interests of such Pledgor.
NOW, THEREFORE, in consideration of the premises, of the benefits which
will inure to Pledgors from Secured Party's extension of credit under the Notes,
and of Ten Dollars and other good and valuable consideration, the receipt and
sufficiency of all of which are hereby acknowledged, and in order to induce
Secured Party to extend credit under the Purchase Agreement, each Pledgor hereby
agrees with Secured Party as follows:
AGREEMENTS
ARTICLE I -- Definitions and References
Section 1.1. General Definitions. As used herein, the terms
"Agreement", "Pledgor", "Secured Party", "Buyer", "Notes", "Purchase Agreement",
"Partnership", "Future Nevada", "Future Texas" and "Guaranty" shall have the
meanings indicated above, and the following terms shall have the following
meanings:
"Collateral" means all property, of whatever type, which is described
in Section 2.1 as being at any time subject to a security interest granted
hereunder to Secured Party.
"Issuer" means each Partnership, Future Nevada, Future Texas and any
successor of any such Issuer.
"Obligation Documents" means the Notes, the Purchase Agreement, the
Guaranty, the Note Documents and all other documents and instruments under, by
reason of which, or pursuant to which any or all of the Secured Obligations are
evidenced, governed, secured, guarantied, or otherwise dealt with, and all other
agreements, certificates, and other documents, instruments and writings
heretofore or hereafter delivered in connection herewith or therewith.
"Other Liable Party" means any Person, other than Pledgor, who may now
or may at any time hereafter be primarily or secondarily liable for any of the
Secured Obligations or who may now or may at any time hereafter have granted to
Secured Party a Lien upon any property as security for the Secured Obligations.
"Other Partnership Rights" has the meaning given it in Section 2.1(b).
"Partnership Agreements", "Partnership Rights", and "Partnership Rights
to Payments" have the meanings given them in Section 2.1(b).
"Person" means an individual, corporation, partnership, association,
joint stock company, trust, unincorporated organization or joint venture, or a
court or governmental unit or any agency or subdivision thereof, or any other
legally recognizable entity.
"Pledged Shares" has the meaning given it in Section 2.1(a).
"Secured Obligations" shall have the meaning given to it in Section
2.2.
"UCC" means the Uniform Commercial Code in effect in the State of Texas
on the date hereof.
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Section 1.2. Incorporation of Other Definitions. Reference is hereby
made to the Purchase Agreement for a statement of the terms thereof. All
capitalized terms used in this Agreement which are defined in the Purchase
Agreement and not otherwise defined herein shall have the same meanings herein
as set forth therein. All terms used in this Agreement which are defined in the
UCC and not otherwise defined herein or in the Purchase Agreement shall have the
same meanings herein as set forth therein, except where the context otherwise
requires.
Section 1.3. Attachments. All exhibits or schedules which may be
attached to this Agreement are a part hereof for all purposes.
Section 1.4. Amendment of Defined Instruments. Unless the context
otherwise requires or unless otherwise provided herein, references in this
Agreement to a particular agreement, instrument or document (including, but not
limited to, references in Section 2.1) also refer to and include all renewals,
extensions, amendments, modifications, supplements or restatements of any such
agreement, instrument or document, provided that nothing contained in this
Section shall be construed to authorize any Person to execute or enter into any
such renewal, extension, amendment, modification, supplement or restatement.
Section 1.5. References and Titles. All references in this Agreement to
Exhibits, Articles, Sections, subsections, and other subdivisions refer to the
Exhibits, Articles, Sections, subsections and other subdivisions of this
Agreement unless expressly provided otherwise. Titles appearing at the beginning
of any subdivision are for convenience only and do not constitute any part of
any such subdivision and shall be disregarded in construing the language
contained in this Agreement. The words "this Agreement", "herein", "hereof",
"hereby", "hereunder" and words of similar import refer to this Agreement as a
whole and not to any particular subdivision unless expressly so limited. The
phrases "this Section" and "this subsection" and similar phrases refer only to
the Sections or subsections hereof in which the phrase occurs. The word "or" is
not exclusive, and the word "including" (in all of its forms) means "including
without limitation". Pronouns in masculine, feminine and neuter gender shall be
construed to include any other gender, and words in the singular form shall be
construed to include the plural and vice versa unless the context otherwise
requires.
ARTICLE II -- Security Interest
Section 2.1. Grant of Security Interest. As collateral security for all
of the Secured Obligations, each Pledgor hereby pledges and assigns to Secured
Party and grants to Secured Party a continuing security interest in and to all
right, title and interest of the following:
(a) Pledged Shares. All of the following, whether now or hereafter
existing, which are owned by such Pledgor or in which such Pledgor otherwise has
any rights: the shares of stock described on Exhibit A hereto and all other
shares of stock in Future Texas or Future Nevada which are now or hereafter
owned by Pledgor, all certificates representing any such shares, all options and
other rights, contractual or otherwise, at any time existing with respect to
such shares, and all dividends, cash, instruments and other property now or
hereafter received, receivable or otherwise distributed in respect of or in
exchange for any or all of such shares (any and all such shares, certificates,
options, rights, dividends, cash, instruments and other property, collectively,
the "Pledged Shares").
(b) Partnership Rights. All of the following (collectively, the
"Partnership Rights"), whether now or hereafter existing, which are owned by
such Pledgor or in which such Pledgor otherwise has any rights:
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(i) all proceeds, interest, profits, and other payments or
rights to payment attributable to such Pledgor's interests in the
Partnerships described in Exhibit A, and all distributions, cash,
instruments and other property now or hereafter received, receivable or
otherwise made with respect to or in exchange for any interest of such
Pledgor in any Partnership, including interim distributions, returns of
capital, loan repayments, and payments made in liquidation of any
Partnership, and whether or not the same arise or are payable under any
partnership agreement or certificate forming any Partnership or any
other agreement governing any Partnership or the relations among the
partners in any Partnership (any and all such proceeds, interest,
profits, payments, rights to payment, distributions, cash, instruments,
other property, interim distributions, returns of capital, loan
repayments, and payments made in liquidation, collectively, the
"Partnership Rights to Payments", and any and all such partnership
agreements, certificates, and other agreements, collectively, the
"Partnership Agreements"); and
(ii) all other interests and rights of such Pledgor in any of
the Partnerships, whether under the Partnership Agreements or
otherwise, including without limitation any right to cause the
dissolution of any Partnership or to appoint or nominate a successor to
such Pledgor as a partner in any Partnership (all such other interests
and rights, collectively, the "Other Partnership Rights").
(c) Proceeds. All proceeds of any and all of the foregoing Collateral
and, to the extent not otherwise included, all payments under insurance (whether
or not Secured Party is the loss payee thereof) or under any indemnity, warranty
or guaranty by reason of loss to or otherwise with respect to any of the
foregoing Collateral.
In each case, the foregoing shall be covered by this Agreement, whether such
Pledgor's ownership or other rights therein are presently held or hereafter
acquired and however such Pledgor's interests therein may arise or appear
(whether by ownership, security interest, claim or otherwise).
Each Pledgor other than Buyer and Secured Party (by its acceptance
hereof), hereby confirm that it is their intention that the security interests
granted by such Pledgor hereunder not constitute a fraudulent transfer or
fraudulent conveyance for purposes of any federal or state law. To effectuate
the foregoing intention, each such Pledgor and Secured Party (by its acceptance
hereof) hereby irrevocably agree and understand that, notwithstanding any other
provision of this Agreement, the Collateral granted by such Pledgor hereunder
shall be limited to the maximum amount of Collateral that can be pledged without
rendering this Agreement, as it relates to such Pledgor, voidable under
applicable law relating to fraudulent conveyances or fraudulent transfers, and
not for any greater amount.
The granting of the foregoing security interest does not make Secured
Party a successor to any Pledgor as a partner in any Partnership, and neither
Secured Party nor any of its successors or assigns hereunder shall be deemed to
have become a partner in any Partnership by accepting this Agreement or
exercising any right granted herein unless and until such time, if any, when
Secured Party or any such successor or assign expressly becomes a partner in any
Partnership after a foreclosure upon Other Partnership Rights. Notwithstanding
anything herein to the contrary (except to the extent, if any, that Secured
Party or any of its successors or assigns hereafter expressly becomes a partner
in any Partnership), neither Secured Party nor any of its successors or assigns
shall be deemed to have assumed or otherwise become liable for any debts or
obligations of any Partnership or of any Pledgor to or under any Partnership,
and the above definition of "Other Partnership Rights" shall be deemed modified,
if necessary, to prevent any such assumption or other liability.
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Section 2.2. Secured Obligations Secured. The security interest created
hereby in the Collateral constitutes continuing collateral security for all of
the following obligations, indebtedness and liabilities, whether now existing or
hereafter incurred or arising:
(a) Purchase Agreement Indebtedness. The payment by Buyer, as and when
due and payable, of the "Obligations", as defined in the Purchase Agreement, and
of all amounts from time to time owing by Buyer under or in respect of the
Purchase Agreement, the Notes or any of the other Obligation Documents.
(b) Guaranty Indebtedness. The payment by the Partnerships, Future
Nevada and Future Texas, as and when due and payable, of all amounts from time
to time owing by such Person under or in respect of the Guaranty, or any of the
other Obligation Documents to which such Person is a party, and the due
performance by the Partnerships, Future Nevada and Future Texas of all of its
other respective obligations under or in respect of the Guaranty and such other
Obligation Documents.
(c) Renewals. All renewals, extensions, amendments, modifications,
supplements, or restatements of or substitutions for any of the foregoing.
(d) Performance. The due performance and observance by each Pledgor of
all of its other obligations from time to time existing under or in respect of
any of the Obligation Documents.
As used herein, the term "Secured Obligations" refers to all present and future
indebtedness, obligations and liabilities of whatever type which are described
above in this section, including any interest which accrues after the
commencement of any case, proceeding, or other action relating to the
bankruptcy, insolvency, or reorganization of any Pledgor. Each Pledgor hereby
acknowledges that the Secured Obligations are owed to each Secured Party and
that each Secured Party is entitled to the benefits of the Liens given under
this Agreement.
ARTICLE III -- Representations, Warranties and Covenants
Section 3.1. Representations and Warranties. Each Pledgor represents
and warrants to Secured Party as follows:
(a) Ownership Free of Liens. Each Pledgor has good and marketable title
to the Collateral free and clear of all Liens, encumbrances or adverse claims,
except for the security interest created by this Agreement. No dispute, right of
setoff, counterclaim or defense exists with respect to all or any part of the
Collateral. No effective financing statement or other instrument similar in
effect covering all or any part of the Collateral is on file in any recording
office except any which have been filed in favor of Secured Party relating to
this Agreement.
(b) No Conflicts or Consents. Neither the ownership or the intended use
of the Collateral by any Pledgor, nor the grant of the security interest by each
Pledgor to Secured Party herein, nor the exercise by Secured Party of its rights
or remedies hereunder, will (i) conflict with any provision of (a) any domestic
or foreign law, statute, rule or regulation, (b) the articles or certificate of
incorporation, charter or bylaws or partnership agreement of any Pledgor or any
Partnership, or (c) any agreement, judgment, license, order or permit applicable
to or binding upon any Pledgor or any Issuer, or (ii) result in or require the
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creation of any Lien, charge or encumbrance upon any assets or properties of any
Pledgor or any Issuer except as expressly contemplated in the Obligation
Documents. Except as expressly contemplated in the Obligation Documents, no
consent, approval, authorization or order of, and no notice to or filing with,
any court, governmental authority, Issuer or third party is required in
connection with the grant by Pledgors of the security interest herein, or the
exercise by Secured Party of its rights and remedies hereunder.
(c) Security Interest. Each Pledgor has and will have at all times full
right, power and authority to grant a security interest in the Collateral to
Secured Party as provided herein, free and clear of any Lien, adverse claim, or
encumbrance. This Agreement creates a valid and binding security interest in
favor of Secured Party in the Collateral, which security interest secures all of
the Secured Obligations. The taking possession by Secured Party of all
instruments and cash constituting Collateral from time to time and the filing of
the financing statements delivered concurrently herewith by Pledgors to Secured
Party will perfect, and establish the first priority of, Secured Party's
security interest hereunder in the Collateral securing the Secured Obligations.
No further or subsequent filing, recording, registration, other public notice or
other action is necessary or desirable to perfect or otherwise continue,
preserve or protect such security interest except for continuation statements or
filings described in Section 3.3(d).
(d) Location of Pledgors and Records. Each Pledgor's chief executive
office and principal place of business and the office where the records
concerning the Collateral are kept is located at its address set forth in the
Purchase Agreement.
(e) Pledged Shares. Each Pledgor has delivered to Secured Party all
certificates evidencing Pledged Shares. All such certificates are valid and
genuine and have not been altered. All shares and other securities constituting
the Pledged Shares have been duly authorized and validly issued, are fully paid
and non-assessable, and were not issued in violation of the preemptive rights of
any Person or of any agreement by which Pledgor or the Issuer thereof is bound.
All documentary, stamp or other taxes or fees owing in connection with the
issuance, transfer or pledge of Pledged Shares (or rights in respect thereof)
have been paid. No restrictions or conditions exist with respect to the
transfer, voting or capital of any Pledged Shares. The Pledged Shares constitute
the percentage of the class of issued shares of capital stock which is indicated
on Exhibit A. No Issuer of any Pledged Shares has any outstanding stock rights,
rights to subscribe, options, warrants or convertible securities outstanding or
any other rights outstanding whereby any Person would be entitled to have issued
to him capital stock of such Issuer.
(f) Partnership Rights. Each Pledgor has taken or concurrently herewith
is taking all actions necessary to perfect Secured Party's security interest in
the Partnership Rights, including any registrations, filings or notices which
may be necessary or advisable under Article 8 of the UCC as in effect in the
state or states in which any Partnership was organized. No other Person has any
such registration in effect. Pledgors own the interests in each Partnership
which are described on Exhibit A. No Partnership has made any calls for capital
which have not been fully paid by Pledgors and by each other partner in such
Partnership. No Pledgor is in default under any of the Partnership Agreements,
nor is any other partner in any Partnership. Neither the making of this
Agreement nor the exercise of any rights or remedies of Secured Party hereunder
will cause a default under any of the Partnership Agreements or otherwise
adversely affect or diminish any of the Partnership Rights. Each Pledgor's
rights under the Partnership Agreements are enforceable in accordance with their
terms, except as such enforcement may be limited by bankruptcy, insolvency or
similar laws of general application relating to the enforcement of creditors'
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rights. With respect to BMC LP, the foregoing representations and warranties in
this subsection (f) are to the best of Pledgor's knowledge after due inquiry.
Section 3.2. Affirmative Covenants. Unless Secured Party shall
otherwise consent in writing, each Pledgor will at all times comply with the
covenants contained in this Section 3.2 from the date hereof and so long as any
part of the Secured Obligations is outstanding.
(a) Ownership and Liens. Each Pledgor will maintain good and marketable
title to all Collateral free and clear of all Liens, encumbrances or adverse
claims, except for the security interest created by this Agreement. No Pledgor
will permit any dispute, right of setoff, counterclaim or defense to exist with
respect to all or any part of the Collateral. Each Pledgor will cause to be
terminated any financing statement or other registration or instrument similar
in effect covering all or any part of the Collateral, except any which have been
filed in favor of Secured Party relating to this Agreement. Each Pledgor will
defend Secured Party's right, title and special property and security interest
in and to the Collateral against the claims of any Person.
(b) Further Assurances. Each Pledgor will, at its expense and at any
time and from time to time, promptly execute and deliver all further instruments
and documents and take all further action that may be necessary or desirable or
that Secured Party may request in order (i) to perfect and protect the security
interest created or purported to be created hereby and the first priority of
such security interest; (ii) to enable Secured Party to exercise and enforce its
rights and remedies hereunder in respect of the Collateral; or (iii) to
otherwise effect the purposes of this Agreement, including: (A) executing and
filing such financing or continuation statements, or amendments thereto, as may
be necessary or desirable or that Secured Party may request in order to perfect
and preserve the security interest created or purported to be created hereby;
(B) delivering to Secured Party (upon request, to the extent not otherwise
required hereunder to be delivered without request) all originals of chattel
paper, documents or instruments which are from time to time included in the
Collateral; and (C) furnishing to Secured Party from time to time statements and
schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral as Secured Party may reasonably
request, all in reasonable detail.
(c) Inspection and Information. Each Pledgor will keep adequate records
concerning the Collateral and will permit Secured Party and all representatives
appointed by Secured Party, including independent accountants, agents,
attorneys, appraisers and any other persons, to inspect any of the Collateral
and the books and records of or relating to the Collateral at any time during
normal business hours, and to make photocopies and photographs thereof, and to
write down and record any information as such representatives shall obtain. Each
Pledgor will furnish to Secured Party any information which Secured Party may
from time to time request concerning any covenant, provision or representation
contained herein or any other matter in connection with the Collateral or any
Pledgor's business, properties, or financial condition.
(d) Partnership Rights. Each Pledgor will maintain its ownership of the
interests in each Partnership. Each Pledgor will timely honor all calls under
any Partnership Agreement to provide capital to any Partnership, and no Pledgor
will otherwise default in performing any of such Pledgor's obligations under any
Partnership Agreement or allow any Partnership Rights to be adversely affected
or diminished. Each Pledgor will promptly inform Secured Party of any such
failure to honor a capital call, default, adverse effect, or diminution. Each
Pledgor will promptly inform Secured Party of any such failure to honor a
capital call or default by another partner in any Partnership. The Partnership
Rights shall at all times be duly authorized and validly issued and shall not be
issued in violation of the pre-emptive rights of any Person or of any agreement
by which any Pledgor or the Partnership thereof is bound.
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(e) Delivery of Pledged Shares and Certificates. All instruments and
writings evidencing the Pledged Shares and any certificates or instruments
evidencing the Partnership Rights shall be delivered to Secured Party on or
prior to the execution and delivery of this Agreement, together with a true copy
of the Partnership Agreements and all amendments and supplements thereto. All
other instruments and writings hereafter evidencing or constituting Pledged
Shares or evidencing Partnership Rights, and all amendments and supplements to
the Partnership Agreements (whether or not authorized hereunder) shall be
delivered to Secured Party promptly upon the receipt thereof by or on behalf of
Pledgors. All such Pledged Shares, certificates and instruments shall be held by
or on behalf of Secured Party pursuant hereto and shall be delivered in suitable
form for transfer by delivery with any necessary endorsement or shall be
accompanied by fully executed instruments of transfer or assignment in blank,
all in form and substance satisfactory to Secured Party.
(f) Proceeds of Pledged Shares and Partnership Rights. If any Pledgor
shall receive, by virtue of its being or having been an owner of any Pledged
Shares or Partnership Rights, any (i) stock certificate, certificate,
instrument, deed, bill of sale, promissory note, or other instrument or writing
(including any certificate representing a stock dividend or distribution or any
given in connection with any increase or reduction of capital, reorganization,
reclassification, merger, consolidation, sale of assets, liquidation, or partial
liquidation, combination of shares, stock split, spinoff or split-off),
promissory note or other instrument or writing; (ii) option or right, whether as
an addition to, substitution for, or in exchange for, any Pledged Shares or
Partnership Rights, or otherwise; (iii) dividends or distributions payable in
cash (except such dividends or distributions permitted to be retained by
Pledgors pursuant to Section 4.8 hereof) or in securities or other property, or
(iv) dividends or other distributions in connection with a partial or total
liquidation or dissolution or in connection with a reduction of capital, capital
surplus or paid-in surplus, such Pledgor shall receive the same in trust for the
benefit of Secured Party, shall segregate it from such Pledgor's other property,
and shall promptly deliver it to Secured Party in the exact form received, with
any necessary endorsement or appropriate stock powers or instruments of transfer
duly executed in blank, to be held by Secured Party as Collateral.
(g) Status of Pledged Shares and Partnership Rights. The certificates
evidencing the Pledged Shares and the Partnership Rights shall at all times be
valid and genuine and shall not be altered. The Pledged Shares and the
Partnership Rights at all times shall be duly authorized, validly issued, fully
paid, and non-assessable, and shall not be issued in violation of the preemptive
rights of any Person or of any agreement by which any Pledgor or the Issuer
thereof is bound and shall not be subject to any restrictions with respect to
transfer, voting or capital of such Pledged Shares or Partnership Rights.
(h) Notices from Issuer. Each Pledgor will promptly deliver to Secured
Party a copy of each notice or other communication received by such Pledgor from
any Issuer in respect of any Pledged Shares or Partnership Rights.
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Section 3.3. Negative Covenants. Unless Secured Party shall otherwise
consent in writing, each Pledgor will at all times comply with the covenants
contained in this Section 3.3 from the date hereof and so long as any part of
the Secured Obligations or the Commitment is outstanding.
(a) Transfer or Encumbrance. Pledgor will not sell, assign (by
operation of law or otherwise), transfer, exchange, lease or otherwise dispose
of any of the Collateral, nor will Pledgor grant a Lien upon or execute, file or
record any financing statement or other registration with respect to the
Collateral, nor will Pledgor allow any such Lien, financing statement, or other
registration to exist or deliver actual or constructive possession of the
Collateral to any other Person, other than Liens in favor of Secured Party.
(b) Impairment of Security Interest. Pledgor will not take or fail to
take any action which would in any manner impair the value or enforceability of
Secured Party's security interest in any Collateral.
(c) Compromise of Collateral. Pledgor will not adjust, settle,
compromise, amend or modify any of its rights in the Collateral.
(d) Financing Statement Filings. Pledgor recognizes that financing
statements pertaining to the Collateral have been or may be filed where Pledgor
maintains any Collateral, has its records concerning any Collateral or has its
chief executive office or chief place of business. Without limitation of any
other covenant herein, Pledgor will not cause or permit any change to be made in
its name, identity or corporate structure, or any change to be made to a
jurisdiction other than as represented in Section 3.1 hereof in (i) the location
of any records concerning any Collateral or (ii) in the location of its chief
executive office or chief place of business, unless Pledgor shall have notified
Secured Party of such change at least thirty (30) days prior to the effective
date of such change, and shall have first taken all action required by Secured
Party for the purpose of further perfecting or protecting the security interest
in favor of Secured Party in the Collateral. In any notice furnished pursuant to
this subsection, Pledgor will expressly state that the notice is required by
this Agreement and contains facts that may require additional filings of
financing statements or other notices for the purposes of continuing perfection
of Secured Party's security interest in the Collateral.
(e) Dilution of Shareholdings; Diminution of Partnership Rights. No
Pledgor will adjust, settle, compromise, amend or modify any of the Partnership
Rights or any Partnership Agreement. No Pledgor will permit the issuance or
creation of (i) any additional shares of any class of capital stock of, or any
additional interests in, any Issuer (unless immediately upon issuance or
creation the same are pledged and delivered to Secured Party pursuant to the
terms hereof to the extent necessary to give Secured Party a first priority
security interest after such issue in, or a security interest in Partnership
Rights after such creation which are in the aggregate, at least the same
percentage of such Issuer's outstanding shares as such Pledgor had, or the
outstanding rights of the same kind in Issuer as were subject hereto, before
such issue), whether such additional interests are presently vested or will vest
upon the payment of money or the occurrence or nonoccurrence of any other
condition, (ii) any securities convertible voluntarily by the holder thereof or
automatically upon the occurrence or non-occurrence of any event or condition
into, or exchangeable for, any such shares of capital stock, or (iii) any
warrants, options, contracts or other
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commitments entitling any Person to purchase or otherwise acquire any such
shares of capital stock not outstanding as of the date of this Agreement.
(f) Restrictions on Pledged Shares and Partnership Rights. No Pledgor
will enter into any agreement (other than the Obligation Documents) creating, or
otherwise permit to exist, any restriction or condition upon the transfer,
voting or control of any Pledged Shares or Partnership Rights.
ARTICLE IV -- Remedies, Powers and Authorizations
Section 4.1. Provisions Concerning the Collateral.
(a) Additional Filings. Pledgor hereby authorizes Secured Party to
file, without the signature of Pledgor where permitted by law, one or more
financing or continuation statements, and amendments thereto, relating to the
Collateral. Pledgor further agrees that a carbon, photographic or other
reproduction of this Security Agreement or of any financing statement describing
any Collateral is sufficient as a financing statement and may be filed in any
jurisdiction by Secured Party.
(b) Power of Attorney. Pledgor hereby irrevocably appoints Secured
Party as Pledgor's attorney-in-fact and proxy, with full authority in the place
and stead of Pledgor and in the name of Pledgor or otherwise, from time to time
in Secured Party's discretion, to take any action, and to execute or indorse any
instrument, certificate or notice, which Secured Party may deem necessary or
advisable to accomplish the purposes of this Agreement including any action or
instrument: (i) to request or instruct each Partnership (and each registrar,
transfer agent, or similar Person acting on behalf of each Partnership) to
register the pledge or transfer of the Collateral to Secured Party; (ii) to
otherwise give notification to any Partnership, registrar, transfer agent,
financial intermediary, or other Person of Secured Party's security interests
hereunder; (iii) to ask, demand, collect, sue for, recover, compound, receive
and give acquittance and receipts for moneys due and to become due under or in
respect of any of the Collateral; (iv) to receive, indorse and collect any
drafts or other instruments or documents; (v) to enforce any obligations
included among the Collateral; and (vi) to file any claims or take any action or
institute any proceedings which Secured Party may deem necessary or desirable
for the collection of any of the Collateral or otherwise to enforce, perfect, or
establish the priority of the rights of Secured Party with respect to any of the
Collateral. Pledgor hereby acknowledges that such power of attorney and proxy
are coupled with an interest, and are irrevocable.
(c) Performance by Secured Party. If Pledgor fails to perform any
agreement or obligation contained herein, Secured Party may itself perform, or
cause performance of, such agreement or obligation, and the expenses of Secured
Party incurred in connection therewith shall be payable by Pledgor under Section
4.5.
(d) Collection Rights. Secured Party shall have the right at any time,
after the occurrence of a default under the Notes, to notify (or require Pledgor
to notify) any or all Persons (including any Partnership) obligated to make
payments which are included among the Collateral (whether accounts, general
intangibles, dividends, distributions, Partnership Rights to Payment, or
otherwise) of the assignment thereof to Secured Party under this Agreement and
to direct such obligors to make payment of all amounts due or to become due to
Pledgor thereunder directly to Secured Party and, upon such notification and at
the expense of Pledgor and to the extent permitted by law, to enforce collection
thereof and to adjust, settle or compromise the amount or payment thereof, in
the same manner and to the same
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extent as Pledgor could have done. After Pledgor receives notice that Secured
Party has given (and after Secured Party has required Pledgor to give) any
notice referred to above in this subsection:
(i) all amounts and proceeds (including instruments and writings)
received by Pledgor in respect of such distributions, accounts, or
general intangibles or Partnership Rights to Payments shall be received
in trust for the benefit of Secured Party hereunder, shall be
segregated from other funds of Pledgor and shall be forthwith paid over
to Secured Party in the same form as so received (with any necessary
indorsement) to be, at Secured Party's discretion, either (A) held as
cash collateral and released to Pledgor upon the remedy of all Defaults
or Events of Default or (B) if any Event of Default shall have occurred
and be continuing, applied as specified in Section 4.3, and
(ii) Pledgor will not adjust, settle or compromise the amount or
payment of any such account or general intangible or Partnership Right
to Payments or release wholly or partly any account Pledgor or obligor
thereof (including any Partnership) or allow any credit or discount
thereon.
Section 4.2. Event of Default Remedies. If an Event of Default shall
have occurred and be continuing, Secured Party may from time to time in its
discretion, without limitation and without notice except as expressly provided
below:
(a) exercise in respect of the Collateral, in addition to any other
rights and remedies provided for herein, under the other Obligation Documents or
otherwise available to it, all the rights and remedies of a secured party on
default under the UCC (whether or not the UCC applies to the affected
Collateral);
(b) require Pledgor to, and Pledgor hereby agrees that it will at its
expense and upon request of Secured Party, promptly assemble all or part of the
Collateral as directed by Secured Party and make it (together with all books,
records and information of Pledgor relating thereto) available to Secured Party
at a place to be designated by Secured Party which is reasonably convenient to
both parties;
(c) reduce its claim to judgment or foreclose or otherwise enforce, in
whole or in part, the security interest created hereby by any available judicial
procedure;
(d) dispose of, at its office, on the premises of Pledgor or elsewhere,
all or any part of the Collateral, as a unit or in parcels, by public or private
proceedings, and by way of one or more contracts (it being agreed that the sale
of any part of the Collateral shall not exhaust Secured Party's power of sale,
but sales may be made from time to time, and at any time, until all of the
Collateral has been sold or until the Secured Obligations have been paid and
performed in full), and at any such sale it shall not be necessary to exhibit
any of the Collateral;
(e) buy the Collateral, or any part thereof, at any public sale;
(f) buy the Collateral, or any part thereof, at any private sale if the
Collateral is of a type customarily sold in a recognized market or is of a type
which is the subject of widely distributed standard price quotations;
(g) apply by appropriate judicial proceedings for appointment of a
receiver for the Collateral, or any part thereof, and Pledgor hereby consents to
any such appointment; and
(h) at its discretion, retain the Collateral in satisfaction of the
Secured Obligations whenever the circumstances are such that Secured Party is
entitled to do so under the UCC or otherwise (provided that Secured Party shall
in no circumstances be deemed to have retained the Collateral in satisfaction of
the
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Secured Obligations in the absence of an express notice by Secured Party to
Pledgor that Secured Party has either done so or intends to do so).
Pledgor agrees that, to the extent notice of sale shall be required by law, at
least seven (7) days' notice to Pledgor of the time and place of any public sale
or the time after which any private sale is to be made shall constitute
reasonable notification. Secured Party shall not be obligated to make any sale
of Collateral regardless of notice of sale having been given. Secured Party may
adjourn any public or private sale from time to time by announcement at the time
and place fixed therefor, and such sale may, without further notice, be made at
the time and place to which it was so adjourned.
Section 4.3. Application of Proceeds. If any Event of Default shall
have occurred and be continuing, Secured Party may in its discretion apply any
cash held by Secured Party as Collateral, and any cash proceeds received by
Secured Party in respect of any sale of, collection from, or other realization
upon all or any part of the Collateral, to any or all of the following in such
order as Secured Party may elect:
(a) To the repayment of the reasonable costs and expenses, including
reasonable attorneys' fees and legal expenses, incurred by Secured Party in
connection with (i) the administration of this Agreement, (ii) the custody,
preservation, use or operation of, or the sale of, collection from, or other
realization upon, any Collateral, (iii) the exercise or enforcement of any of
the rights of Secured Party hereunder, or (iv) the failure of Pledgor to perform
or observe any of the provisions hereof;
(b) To the payment or other satisfaction of any Liens, encumbrances, or
adverse claims upon or against any of the Collateral;
(c) To the reimbursement of Secured Party for the amount of any
obligations of Pledgor or any Other Liable Party paid or discharged by Secured
Party pursuant to the provisions of this Agreement or the other Obligation
Documents, and of any expenses of Secured Party payable by Pledgor hereunder or
under the other Obligation Documents;
(d) To the satisfaction of any other Secured Obligations;
(e) By holding the same as Collateral;
(f) To the payment of any other amounts required by applicable law
(including any provision of the UCC); and
(g) By delivery to Pledgor or to whomever shall be lawfully entitled to
receive the same or as a court of competent jurisdiction shall direct.
Section 4.4. Deficiency. In the event that the proceeds of any sale,
collection or realization of or upon Collateral by Secured Party are
insufficient to pay all Secured Obligations and any other amounts to which
Secured Party is legally entitled, Pledgor shall be liable for the deficiency,
together with interest thereon as provided in the governing Obligation Documents
or (if no interest is so provided) at such other rate as shall be fixed by
applicable law, together with the costs of collection and the reasonable fees of
any attorneys employed by Secured Party to collect such deficiency.
Section 4.5. Indemnity and Expenses. In addition to, but not in
qualification or limitation of, any similar obligations under other Obligation
Documents:
12
<PAGE> 13
(a) Pledgor will indemnify Secured Party from and against any and all
claims, losses and liabilities growing out of or resulting from this Agreement
(including enforcement of this Agreement), WHETHER OR NOT SUCH CLAIMS, LOSSES
AND LIABILITIES ARE IN ANY WAY OR TO ANY EXTENT CAUSED BY OR ARISING OUT OF SUCH
INDEMNIFIED PARTY'S OWN NEGLIGENCE, except to the extent such claims, losses or
liabilities are proximately caused by Secured Party's individual gross
negligence or willful misconduct.
(b) Pledgor will upon demand pay to Secured Party the amount of any and
all costs and expenses, including the fees and disbursements of Secured Party's
counsel and of any experts and agents, which Secured Party may incur in
connection with (i) the perfection and preservation of this security interest
created under this Agreement, (ii) the administration of this Agreement; (iii)
the custody, preservation, use or operation of, or the sale of, collection from,
or other realization upon, any Collateral; (iv) the exercise or enforcement of
any of the rights of Secured Party hereunder; or (v) the failure by Pledgor to
perform or observe any of the provisions hereof, except expenses resulting from
Secured Party's gross negligence or willful misconduct.
Section 4.6. Non-Judicial Remedies. In granting to Secured Party the
power to enforce its rights hereunder without prior judicial process or judicial
hearing, Pledgor expressly waives, renounces and knowingly relinquishes any
legal right which might otherwise require Secured Party to enforce its rights by
judicial process. In so providing for non-judicial remedies, Pledgor recognizes
and concedes that such remedies are consistent with the usage of trade, are
responsive to commercial necessity, and are the result of a bargain at arm's
length. Nothing herein is intended, however, to prevent Secured Party from
resorting to judicial process at its option.
Section 4.7. Other Recourse. Pledgor waives any right to require
Secured Party to proceed against any other Person, to exhaust any Collateral or
other security for the Secured Obligations, or to have any Other Liable Party
joined with Pledgor in any suit arising out of the Secured Obligations or this
Agreement, or pursue any other remedy in Secured Party's power. Pledgor further
waives any and all notice of acceptance of this Agreement and of the creation,
modification, rearrangement, renewal or extension for any period of any of the
Secured Obligations of any Other Liable Party from time to time. Pledgor further
waives any defense arising by reason of any disability or other defense of any
Other Liable Party or by reason of the cessation from any cause whatsoever of
the liability of any Other Liable Party. This Agreement shall continue
irrespective of the fact that the liability of any Other Liable Party may have
ceased and irrespective of the validity or enforceability of any other
Obligation Document to which Pledgor or any Other Liable Party may be a party,
and notwithstanding any death, incapacity, reorganization, or bankruptcy of any
Other Liable Party or any other event or proceeding affecting any Other Liable
Party. Until all of the Secured Obligations shall have been paid in full,
Pledgor shall have no right to subrogation and Pledgor waives the right to
enforce any remedy which Secured Party has or may hereafter have against any
Other Liable Party, and waives any benefit of and any right to participate in
any other security whatsoever now or hereafter held by Secured Party. Pledgor
authorizes Secured Party, without notice or demand, without any reservation of
rights against Pledgor, and without in any way affecting Pledgor's liability
hereunder or on the Secured Obligations, from time to time to (a) take or hold
any other property of any type from any other Person as security for the Secured
Obligations, and exchange, enforce, waive and release any or all of such other
property, (b) apply the Collateral or such other property and direct the order
or manner of sale thereof as Secured Party may in its discretion determine, (c)
renew, extend for any period, accelerate, modify, compromise, settle or release
any of the obligations of any Other Liable Party in respect to any or all of the
Secured Obligations or other security for the Secured Obligations, (d) waive,
enforce, modify, amend or supplement any of the provisions of any Obligation
Document with any Person other than Pledgor, and (e) release or substitute any
Other Liable Party.
13
<PAGE> 14
Section 4.8. Voting Rights, Dividends, Etc. in Respect of Pledged
Shares; Exercise of Partnership Rights.
(a) So long as no Default or Event of Default shall have occurred and
be continuing, each Pledgor may receive and retain any and all dividends or
interest or distributions of profits paid in cash in respect of the Pledged
Shares and Partnership Rights to Payments; provided, however, that any and all
(1) dividends and interest paid or payable other than in cash
in respect of, and instruments and other property received, receivable
or otherwise distributed in respect of or in exchange for, any Pledged
Shares or Partnership Rights,
(2) dividends and other distributions paid or payable in cash
in respect of any Pledged Shares or Partnership Rights in connection
with a partial or total liquidation or dissolution or in connection
with a reduction of capital, capital surplus or paid-in surplus, and
(3) cash paid, payable or otherwise distributed in redemption
of, or in exchange for, any Pledged Shares or Partnership Rights,
shall be, and shall forthwith be delivered to Secured Party to hold as, Pledged
Shares or Collateral and shall, if received by any Pledgor, be received in trust
for the benefit of Secured Party, be segregated from the other property or funds
of such Pledgor, and be forthwith delivered to Secured Party in the exact form
received with any necessary indorsement or appropriate stock powers duly
executed in blank, to be held by Secured Party as Collateral;
(b) Upon the occurrence and during the continuance of a Default or an
Event of Default:
(i) all rights of any Pledgor to receive and retain the
dividends and interest payments or any distributions of profits or
other payments of any kind in respect of Partnership Rights to Payment
which such Pledgor would otherwise be authorized to receive and retain
pursuant to subsection (a) of this section shall automatically cease,
and all such rights shall thereupon become vested in Secured Party
which shall thereupon have the sole right to receive and hold as
Pledged Shares or Collateral such dividends and interest payments and
all such distributions and payments;
(ii) without limiting the generality of the foregoing, Secured
Party may at its option exercise any and all rights of conversion,
exchange, subscription or any other rights, privileges or options
pertaining to any of the Pledged Shares or Partnership Rights, other
than voting rights pertaining to the Pledged Shares, Partnership
Rights, or any part thereof, as if it were the absolute owner thereof,
including, without limitation, the right to exchange, in its
discretion, any and all of the Pledged Shares or Partnership Rights
upon the merger, consolidation, reorganization, recapitalization or
other adjustment of any Issuer, or upon the exercise by any Issuer of
any right, privilege or option pertaining to any Pledged Shares or
Partnership Rights, and, in connection therewith, to deposit and
deliver any and all of the Pledged Shares and Partnership Rights with
any committee, depository, transfer agent, registrar or other
designated agent upon such terms and conditions as it may determine and
any and all rights to dissolve any Issuer or to compel distribution of
any Issuer's assets; and
(iii) all dividends and interest payments and distributions of
profits and other payments of any kind in respect of Partnership Rights
to Payments which are received by any Pledgor contrary to the
provisions of subsection (b)(i) of this section shall be received in
trust for the benefit of Secured Party, shall be segregated from other
funds of such Pledgor, and shall be forthwith paid over to Secured
Party in the exact form received, to be held by Secured Party as
Collateral.
14
<PAGE> 15
Anything herein to the contrary notwithstanding, each Pledgor may at all times
exercise any and all voting rights pertaining to the Pledged Shares, Partnership
Rights, or any part thereof and Other Partnership Rights for any purpose not
inconsistent with the terms of this Agreement or any other Obligation Document.
Section 4.9. Private Sale of Pledged Shares and Partnership Rights.
Each Pledgor recognizes that Secured Party may deem it impracticable to effect a
public sale of all or any part of the Pledged Shares or Partnership Rights and
that Secured Party may, therefore, determine to make one or more private sales
of any such securities or Partnership Rights to a restricted group of purchasers
who will be obligated to agree, among other things, to acquire such securities
or Partnership Rights for their own account, for investment and not with a view
to the distribution or resale thereof. Each Pledgor acknowledges that any such
private sale may be at prices and on terms less favorable to the seller than the
prices and other terms which might have been obtained at a public sale and,
notwithstanding the foregoing, agrees that such private sales shall be deemed to
have been made in a commercially reasonable manner and that Secured Party shall
have no obligation to delay sale of any such securities or Partnership Rights
for the period of time necessary to permit the Issuer of such securities to
register such securities for, or their registration for, public sale under the
Securities Act of 1933, as amended, which as to the Partnership Rights shall be
to the extent, if any, that it is applicable thereto. Each Pledgor further
acknowledges and agrees that any offer to sell such securities or Partnership
Rights which has been (i) publicly advertised on a bona fide basis in a
newspaper or other publication of general circulation in the financial community
of Houston, Texas (to the extent that such an offer may be so advertised without
prior registration under the Securities Act), or (ii) made privately in the
manner described above to not less than fifteen (15) bona fide offerees shall be
deemed to involve a "public sale" for the purposes of Section 9-504(3) of the
UCC (or any successor or similar, applicable statutory provision) as then in
effect in the State of Texas, notwithstanding that such sale may not constitute
a "public offering" under the Securities Act of 1933, as amended, and that
Secured Party or one or more Lenders may, in such event, bid for the purchase of
such securities or Partnership Rights.
ARTICLE V. -- Miscellaneous
Section 5.1. Notices. Any notice or communication required or permitted
hereunder shall be given as provided in the Purchase Agreement.
Section 5.2. Amendments. No amendment of any provision of this
Agreement shall be effective unless it is in writing and signed by Pledgor and
Secured Party, and no waiver of any provision of this Agreement, and no consent
to any departure by Pledgor therefrom, shall be effective unless it is in
writing and signed by Secured Party, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given and to the extent specified in such writing.
Section 5.3. Preservation of Rights. No failure on the part of Secured
Party to exercise, and no delay in exercising, any right hereunder or under any
other Obligation Document shall operate as a waiver thereof; nor shall any
single or partial exercise of any such right preclude any other or further
exercise thereof or the exercise of any other right. Neither the execution nor
the delivery of this Agreement shall in any manner impair or affect any other
security for the Secured Obligations. The rights and remedies of Secured Party
provided herein and in the other Obligation Documents are cumulative and are in
addition to, and not exclusive of, any rights or remedies provided by law. The
rights of Secured Party under any Obligation Document against any party thereto
are not conditional or contingent on any attempt by Secured Party to exercise
any of its rights under any other Obligation Document against such party or
against any other Person.
15
<PAGE> 16
Section 5.4. Unenforceability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or invalidity without
invalidating the remaining portions hereof or thereof or affecting the validity
or enforceability of such provision in any other jurisdiction.
Section 5.5. Survival of Agreements. All representations and warranties
of Pledgor herein, and all covenants and agreements herein shall survive the
execution and delivery of this Agreement, the execution and delivery of any
other Obligation Documents and the creation of the Secured Obligations.
Section 5.6. Other Liable Party. Neither this Agreement nor the
exercise by Secured Party or the failure of Secured Party to exercise any right,
power or remedy conferred herein or by law shall be construed as relieving any
Other Liable Party from liability on the Secured Obligations or any deficiency
thereon. This Agreement shall continue irrespective of the fact that the
liability of any Other Liable Party may have ceased or irrespective of the
validity or enforceability of any other Obligation Document to which Pledgor or
any Other Liable Party may be a party, and notwithstanding the reorganization,
death, incapacity or bankruptcy of any Other Liable Party, and notwithstanding
the reorganization or bankruptcy or other event or proceeding affecting any
Other Liable Party.
Section 5.7. Binding Effect and Assignment. This Agreement creates a
continuing security interest in the Collateral and (a) shall be binding on
Pledgor and its successors and permitted assigns and (b) shall inure, together
with all rights and remedies of Secured Party hereunder, to the benefit of
Secured Party and its successors, transferees and assigns. Without limiting the
generality of the foregoing, Secured Party may pledge, assign or otherwise
transfer any or all of its rights under any or all of the Obligation Documents
to any other Person, and such other Person shall thereupon become vested with
all of the benefits in respect thereof granted to Secured Party, herein or
otherwise. None of the rights or duties of Pledgor hereunder may be assigned or
otherwise transferred without the prior written consent of Secured Party.
Section 5.8. Termination. It is contemplated by the parties hereto that
there may be times when no Secured Obligations are outstanding, but
notwithstanding such occurrences, this Agreement shall remain valid and shall be
in full force and effect as to subsequent outstanding Secured Obligations. Upon
the satisfaction in full of the Secured Obligations, upon the termination or
expiration of the Purchase Agreement and any other commitment of Secured Party
to extend credit to Pledgor, and upon written request for the termination hereof
delivered by Pledgor to Secured Party, this Agreement and the security interest
created hereby shall terminate and all rights to the Collateral shall revert to
Pledgor. Secured Party will, upon Pledgor's request and at Pledgor's expense,
(a) return to Pledgor such of the Collateral as shall not have been sold or
otherwise disposed of or applied pursuant to the terms hereof; and (b) execute
and deliver to Pledgor such documents as Pledgor shall reasonably request to
evidence such termination.
Section 5.9. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas applicable to
contracts made and to be performed entirely within such State, except as
required by mandatory provisions of law and except to the extent that the
perfection and the effect of perfection or non-perfection of the security
interest created hereunder, in respect of any particular collateral, are
governed by the laws of a jurisdiction other than such State.
Section 5.10. Counterparts. This Agreement may be separately executed
in any number of counterparts, all of which when so executed shall be deemed to
constitute one and the same Agreement.
Section 5.11. "Note Document". This Agreement is a "Note Document", as
defined in the Purchase Agreement, and, except as expressly provided herein to
the contrary, this Agreement is subject to all provisions of the Purchase
Agreement governing such Note Documents.
16
<PAGE> 17
IN WITNESS WHEREOF, each Pledgor has caused this Agreement to be
executed and delivered this Agreement by its officer thereunto duly authorized,
as of the date first above written.
FUTURE PETROLEUM CORPORATION
a Utah corporation
By: /s/ B. CARL PRICE
----------------------------------------
B. Carl Price, President
FUTURE ENERGY CORPORATION
a Nevada corporation
By: /s/ B. CARL PRICE
----------------------------------------
B. Carl Price, President
FUTURE PETROLEUM CORPORATION
a Texas corporation
By: /s/ B. CARL PRICE
----------------------------------------
B. Carl Price, President
Address of Pledgors:
2351 West Northwest Highway
Dallas, Texas 75220
Attention: Carl Price
Telecopy: 214-350-8382
17
<PAGE> 18
EXHIBIT A
DESCRIPTION OF INITIAL PLEDGED STOCK
<TABLE>
<CAPTION>
Pledgor Issuer Cert. No. No. of Shares
- ------- ------ --------- -------------
<S> <C> <C> <C>
Future Petroleum Corporation, Future Energy Corporation, 1 1,000 common
a Utah corporation a Nevada corporation
Future Petroleum Corporation, Future Petroleum Corporation, 1 1,000 common
a Utah corporation a Texas corporation
</TABLE>
DESCRIPTION OF INITIAL PARTNERSHIP RIGHTS
<TABLE>
<CAPTION>
Pledgor Issuer Interest
- ------- ------ --------
<S> <C> <C> <C>
Future Energy Corporation, BMC Development No. 1 99% limited partnership interest
a Nevada corporation Limited Partnership
a Texas limited partnership
Future Energy Corporation, Future Acquisition 1995, Ltd. 99% limited partnership interest
a Nevada corporation a Texas limited partnership
Future Petroleum Corporation, BMC Development No. 1 1% general partnership interest
a Texas corporation Limited Partnership
a Texas limited partnership
Future Petroleum Corporation, Future Acquisition 1995, Ltd. 1% general partnership interest
a Texas corporation a Texas limited partnership
</TABLE>
<PAGE> 19
FINANCING STATEMENT
This instrument is prepared and is intended to be a Financing Statement
complying with the formal requisites therefor as set forth in the Uniform
Commercial Code.
1 The name and address of the Debtor ("Debtor") is:
Future Petroleum Corporation
a Texas corporation
2351 West Northwest Highway
Dallas, Texas 75220
Attention: Carl Price
2 The name and address of the secured parties ("Secured Party") are:
Energy Capital Investment Company PLC
c/o EnCap Investments L.C.
1100 Louisiana, Suite 3150
Houston, Texas 77002
Attention: Colin Nisbeth
EnCap Equity 1994 Limited Partnership
c/o EnCap Investments L.C.
1100 Louisiana, Suite 3150
Houston, Texas 77002
Attention: Colin Nisbeth
Gecko Booty 1994 I Limited Partnership
c/o EnCap Investments L.C.
1100 Louisiana, Suite 3150
Houston, Texas 77002
Attention: Colin Nisbeth
3 This Financing Statement covers the following types or items of
property (collectively, the "Collateral"):
(a) Pledged Shares. All of the following, whether now or hereafter
existing, which are owned by such Debtor or in which such Debtor otherwise has
any rights: the shares of stock described on Exhibit A hereto and all other
shares of stock in Future Energy Corporation, a Nevada corporation and Future
Petroleum Corporation, a Texas corporation, which are now or hereafter owned by
Debtor, all certificates representing any such shares, all options and other
rights, contractual or otherwise, at any time existing with respect to such
shares, and all dividends, cash, instruments and other property now or hereafter
received, receivable or otherwise distributed in respect of or in exchange for
any or all of such shares.
(b) Partnership Rights. All of the following (herein collectively
called the "Partnership Rights"), whether now or hereafter existing, which are
owned by Debtor or in which Debtor otherwise has any rights:
1
<PAGE> 20
(i) all proceeds, interest, profits, and other payments or
rights to payment attributable to Debtor's interests in the
Partnerships, and all distributions, cash, instruments and other
property now or hereafter received, receivable or otherwise made with
respect to or in exchange for any interest of Debtor in any
Partnership, including interim distributions, returns of capital, loan
repayments, and payments made in liquidation of any Partnership, and
whether or not the same arise or are payable under any partnership
agreement or certificate forming any Partnership or any other agreement
governing any Partnership or the relations among the partners in any
Partnership (and any and all such partnership agreements, certificates,
and other agreements being herein called the "Partnership Agreements");
and
(ii) all other interests and rights of Debtor in any of the
Partnerships, whether under the Partnership Agreements or otherwise,
including without limitation any right to cause the dissolution of any
Partnership or to appoint or nominate a successor to Debtor as a
partner in any Partnership.
(c) Proceeds. All proceeds of any and all of the foregoing Collateral
and, to the extent not otherwise included, all payments under insurance (whether
or not Secured Party is the loss payee thereof) or under any indemnity, warranty
or guaranty by reason of loss to or otherwise with respect to any of the
foregoing Collateral.
In each case, the foregoing shall be covered by this Agreement, whether Debtor's
ownership or other rights therein are presently held or hereafter acquired and
however Debtor's interests therein may arise or appear (whether by ownership,
security interest, claim or otherwise).
As used above, "Partnership" means each of BMC Development No. 1 Limited
Partnership and Future Acquisition 1995, Ltd., each a Texas limited partnership,
and any successors of any such partnerships.
4 This Financing Statement is presented for filing to the Secretary of
State of Texas.
FUTURE PETROLEUM CORPORATION
A Texas corporation
By: /s/ B. CARL PRICE
--------------------------------
B. Carl Price, President
2
<PAGE> 21
FINANCING STATEMENT
This instrument is prepared and is intended to be a Financing Statement
complying with the formal requisites therefor as set forth in the Uniform
Commercial Code.
1 The name and address of the Debtor ("Debtor") is:
Future Energy Corporation
a Nevada corporation
2351 West Northwest Highway
Dallas, Texas 75220
Attention: Carl Price
2 The name and address of the secured parties ("Secured Party") are:
Energy Capital Investment Company PLC
c/o EnCap Investments L.C.
1100 Louisiana, Suite 3150
Houston, Texas 77002
Attention: Colin Nisbeth
EnCap Equity 1994 Limited Partnership
c/o EnCap Investments L.C.
1100 Louisiana, Suite 3150
Houston, Texas 77002
Attention: Colin Nisbeth
Gecko Booty 1994 I Limited Partnership
c/o EnCap Investments L.C.
1100 Louisiana, Suite 3150
Houston, Texas 77002
Attention: Colin Nisbeth
3 This Financing Statement covers the following types or items of
property (collectively, the "Collateral"):
(a) Pledged Shares. All of the following, whether now or hereafter
existing, which are owned by such Debtor or in which such Debtor otherwise has
any rights: the shares of stock described on Exhibit A hereto and all other
shares of stock in Future Energy Corporation, a Nevada corporation and Future
Petroleum Corporation, a Texas corporation, which are now or hereafter owned by
Debtor, all certificates representing any such shares, all options and other
rights, contractual or otherwise, at any time existing with respect to such
shares, and all dividends, cash, instruments and other property now or hereafter
received, receivable or otherwise distributed in respect of or in exchange for
any or all of such shares.
(b) Partnership Rights. All of the following (herein collectively
called the "Partnership Rights"), whether now or hereafter existing, which are
owned by Debtor or in which Debtor otherwise has any rights:
1
<PAGE> 22
(i) all proceeds, interest, profits, and other payments or
rights to payment attributable to Debtor's interests in the
Partnerships, and all distributions, cash, instruments and other
property now or hereafter received, receivable or otherwise made with
respect to or in exchange for any interest of Debtor in any
Partnership, including interim distributions, returns of capital, loan
repayments, and payments made in liquidation of any Partnership, and
whether or not the same arise or are payable under any partnership
agreement or certificate forming any Partnership or any other agreement
governing any Partnership or the relations among the partners in any
Partnership (and any and all such partnership agreements, certificates,
and other agreements being herein called the "Partnership Agreements");
and
(ii) all other interests and rights of Debtor in any of the
Partnerships, whether under the Partnership Agreements or otherwise,
including without limitation any right to cause the dissolution of any
Partnership or to appoint or nominate a successor to Debtor as a
partner in any Partnership.
(c) Proceeds. All proceeds of any and all of the foregoing Collateral
and, to the extent not otherwise included, all payments under insurance (whether
or not Secured Party is the loss payee thereof) or under any indemnity, warranty
or guaranty by reason of loss to or otherwise with respect to any of the
foregoing Collateral.
In each case, the foregoing shall be covered by this Agreement, whether Debtor's
ownership or other rights therein are presently held or hereafter acquired and
however Debtor's interests therein may arise or appear (whether by ownership,
security interest, claim or otherwise).
As used above, "Partnership" means each of BMC Development No. 1 Limited
Partnership and Future Acquisition 1995, Ltd., each a Texas limited partnership,
and any successors of any such partnerships.
4 This Financing Statement is presented for filing to the Secretary of
State of Nevada.
FUTURE ENERGY CORPORATION
A Nevada corporation
By: /s/ B. CARL PRICE
--------------------------------
B. Carl Price, President
2
<PAGE> 23
FINANCING STATEMENT
This instrument is prepared and is intended to be a Financing Statement
complying with the formal requisites therefor as set forth in the Uniform
Commercial Code.
1 The name and address of the Debtor ("Debtor") is:
Future Energy Corporation
a Nevada corporation
2351 West Northwest Highway
Dallas, Texas 75220
Attention: Carl Price
2 The name and address of the secured parties ("Secured Party") are:
Energy Capital Investment Company PLC
c/o EnCap Investments L.C.
1100 Louisiana, Suite 3150
Houston, Texas 77002
Attention: Colin Nisbeth
EnCap Equity 1994 Limited Partnership
c/o EnCap Investments L.C.
1100 Louisiana, Suite 3150
Houston, Texas 77002
Attention: Colin Nisbeth
Gecko Booty 1994 I Limited Partnership
c/o EnCap Investments L.C.
1100 Louisiana, Suite 3150
Houston, Texas 77002
Attention: Colin Nisbeth
3 This Financing Statement covers the following types or items of
property (collectively, the "Collateral"):
(a) Pledged Shares. All of the following, whether now or hereafter
existing, which are owned by such Debtor or in which such Debtor otherwise has
any rights: the shares of stock described on Exhibit A hereto and all other
shares of stock in Future Energy Corporation, a Nevada corporation and Future
Petroleum Corporation, a Texas corporation, which are now or hereafter owned by
Debtor, all certificates representing any such shares, all options and other
rights, contractual or otherwise, at any time existing with respect to such
shares, and all dividends, cash, instruments and other property now or hereafter
received, receivable or otherwise distributed in respect of or in exchange for
any or all of such shares.
(b) Partnership Rights. All of the following (herein collectively
called the "Partnership Rights"), whether now or hereafter existing, which are
owned by Debtor or in which Debtor otherwise has any rights:
1
<PAGE> 24
(i) all proceeds, interest, profits, and other payments or
rights to payment attributable to Debtor's interests in the
Partnerships, and all distributions, cash, instruments and other
property now or hereafter received, receivable or otherwise made with
respect to or in exchange for any interest of Debtor in any
Partnership, including interim distributions, returns of capital, loan
repayments, and payments made in liquidation of any Partnership, and
whether or not the same arise or are payable under any partnership
agreement or certificate forming any Partnership or any other agreement
governing any Partnership or the relations among the partners in any
Partnership (and any and all such partnership agreements, certificates,
and other agreements being herein called the "Partnership Agreements");
and
(ii) all other interests and rights of Debtor in any of the
Partnerships, whether under the Partnership Agreements or otherwise,
including without limitation any right to cause the dissolution of any
Partnership or to appoint or nominate a successor to Debtor as a
partner in any Partnership.
(c) Proceeds. All proceeds of any and all of the foregoing Collateral
and, to the extent not otherwise included, all payments under insurance (whether
or not Secured Party is the loss payee thereof) or under any indemnity, warranty
or guaranty by reason of loss to or otherwise with respect to any of the
foregoing Collateral.
In each case, the foregoing shall be covered by this Agreement, whether Debtor's
ownership or other rights therein are presently held or hereafter acquired and
however Debtor's interests therein may arise or appear (whether by ownership,
security interest, claim or otherwise).
As used above, "Partnership" means each of BMC Development No. 1 Limited
Partnership and Future Acquisition 1995, Ltd., each a Texas limited partnership,
and any successors of any such partnerships.
4 This Financing Statement is presented for filing to the Secretary of
State of Texas.
FUTURE ENERGY CORPORATION
A Nevada corporation
By: /s/ B. CARL PRICE
--------------------------------
B. Carl Price, President
2
<PAGE> 25
FINANCING STATEMENT
This instrument is prepared and is intended to be a Financing Statement
complying with the formal requisites therefor as set forth in the Uniform
Commercial Code.
1 The name and address of the Debtor ("Debtor") is:
Future Petroleum Corporation
a Utah corporation
2351 West Northwest Highway
Dallas, Texas 75220
Attention: Carl Price
2 The name and address of the secured parties ("Secured Party") are:
Energy Capital Investment Company PLC
c/o EnCap Investments L.C.
1100 Louisiana, Suite 3150
Houston, Texas 77002
Attention: Colin Nisbeth
EnCap Equity 1994 Limited Partnership
c/o EnCap Investments L.C.
1100 Louisiana, Suite 3150
Houston, Texas 77002
Attention: Colin Nisbeth
Gecko Booty 1994 I Limited Partnership
c/o EnCap Investments L.C.
1100 Louisiana, Suite 3150
Houston, Texas 77002
Attention: Colin Nisbeth
3 This Financing Statement covers the following types or items of
property (collectively, the "Collateral"):
(a) Pledged Shares. All of the following, whether now or hereafter
existing, which are owned by such Debtor or in which such Debtor otherwise has
any rights: the shares of stock described on Exhibit A hereto and all other
shares of stock in Future Energy Corporation, a Nevada corporation and Future
Petroleum Corporation, a Texas corporation, which are now or hereafter owned by
Debtor, all certificates representing any such shares, all options and other
rights, contractual or otherwise, at any time existing with respect to such
shares, and all dividends, cash, instruments and other property now or hereafter
received, receivable or otherwise distributed in respect of or in exchange for
any or all of such shares.
(b) Partnership Rights. All of the following (herein collectively
called the "Partnership Rights"), whether now or hereafter existing, which are
owned by Debtor or in which Debtor otherwise has any rights:
1
<PAGE> 26
(i) all proceeds, interest, profits, and other payments or
rights to payment attributable to Debtor's interests in the
Partnerships, and all distributions, cash, instruments and other
property now or hereafter received, receivable or otherwise made with
respect to or in exchange for any interest of Debtor in any
Partnership, including interim distributions, returns of capital, loan
repayments, and payments made in liquidation of any Partnership, and
whether or not the same arise or are payable under any partnership
agreement or certificate forming any Partnership or any other agreement
governing any Partnership or the relations among the partners in any
Partnership (and any and all such partnership agreements, certificates,
and other agreements being herein called the "Partnership Agreements");
and
(ii) all other interests and rights of Debtor in any of the
Partnerships, whether under the Partnership Agreements or otherwise,
including without limitation any right to cause the dissolution of any
Partnership or to appoint or nominate a successor to Debtor as a
partner in any Partnership.
(c) Proceeds. All proceeds of any and all of the foregoing Collateral
and, to the extent not otherwise included, all payments under insurance (whether
or not Secured Party is the loss payee thereof) or under any indemnity, warranty
or guaranty by reason of loss to or otherwise with respect to any of the
foregoing Collateral.
In each case, the foregoing shall be covered by this Agreement, whether Debtor's
ownership or other rights therein are presently held or hereafter acquired and
however Debtor's interests therein may arise or appear (whether by ownership,
security interest, claim or otherwise).
As used above, "Partnership" means each of BMC Development No. 1 Limited
Partnership and Future Acquisition 1995, Ltd., each a Texas limited partnership,
and any successors of any such partnerships.
4 This Financing Statement is presented for filing to the Secretary of
State of Utah.
FUTURE PETROLEUM CORPORATION
A Utah corporation
By: /s/ B. CARL PRICE
--------------------------------
B. Carl Price, President
2
<PAGE> 27
FINANCING STATEMENT
This instrument is prepared and is intended to be a Financing Statement
complying with the formal requisites therefor as set forth in the Uniform
Commercial Code.
1 The name and address of the Debtor ("Debtor") is:
Future Petroleum Corporation
a Utah corporation
2351 West Northwest Highway
Dallas, Texas 75220
Attention: Carl Price
2 The name and address of the secured parties ("Secured Party") are:
Energy Capital Investment Company PLC
c/o EnCap Investments L.C.
1100 Louisiana, Suite 3150
Houston, Texas 77002
Attention: Colin Nisbeth
EnCap Equity 1994 Limited Partnership
c/o EnCap Investments L.C.
1100 Louisiana, Suite 3150
Houston, Texas 77002
Attention: Colin Nisbeth
Gecko Booty 1994 I Limited Partnership
c/o EnCap Investments L.C.
1100 Louisiana, Suite 3150
Houston, Texas 77002
Attention: Colin Nisbeth
3 This Financing Statement covers the following types or items of
property (collectively, the "Collateral"):
(a) Pledged Shares. All of the following, whether now or hereafter
existing, which are owned by such Debtor or in which such Debtor otherwise has
any rights: the shares of stock described on Exhibit A hereto and all other
shares of stock in Future Energy Corporation, a Nevada corporation and Future
Petroleum Corporation, a Texas corporation, which are now or hereafter owned by
Debtor, all certificates representing any such shares, all options and other
rights, contractual or otherwise, at any time existing with respect to such
shares, and all dividends, cash, instruments and other property now or hereafter
received, receivable or otherwise distributed in respect of or in exchange for
any or all of such shares.
(b) Partnership Rights. All of the following (herein collectively
called the "Partnership Rights"), whether now or hereafter existing, which are
owned by Debtor or in which Debtor otherwise has any rights:
1
<PAGE> 28
(i) all proceeds, interest, profits, and other payments or
rights to payment attributable to Debtor's interests in the
Partnerships, and all distributions, cash, instruments and other
property now or hereafter received, receivable or otherwise made with
respect to or in exchange for any interest of Debtor in any
Partnership, including interim distributions, returns of capital, loan
repayments, and payments made in liquidation of any Partnership, and
whether or not the same arise or are payable under any partnership
agreement or certificate forming any Partnership or any other agreement
governing any Partnership or the relations among the partners in any
Partnership (and any and all such partnership agreements, certificates,
and other agreements being herein called the "Partnership Agreements");
and
(ii) all other interests and rights of Debtor in any of the
Partnerships, whether under the Partnership Agreements or otherwise,
including without limitation any right to cause the dissolution of any
Partnership or to appoint or nominate a successor to Debtor as a
partner in any Partnership.
(c) Proceeds. All proceeds of any and all of the foregoing Collateral
and, to the extent not otherwise included, all payments under insurance (whether
or not Secured Party is the loss payee thereof) or under any indemnity, warranty
or guaranty by reason of loss to or otherwise with respect to any of the
foregoing Collateral.
In each case, the foregoing shall be covered by this Agreement, whether Debtor's
ownership or other rights therein are presently held or hereafter acquired and
however Debtor's interests therein may arise or appear (whether by ownership,
security interest, claim or otherwise).
As used above, "Partnership" means each of BMC Development No. 1 Limited
Partnership and Future Acquisition 1995, Ltd., each a Texas limited partnership,
and any successors of any such partnerships.
4 This Financing Statement is presented for filing to the Secretary of
State of Texas.
FUTURE PETROLEUM CORPORATION
A Utah corporation
By: /s/ B. CARL PRICE
--------------------------------
B. Carl Price, President
2
<PAGE> 29
FUTURE PETROLEUM CORPORATION.
2351 West Northwest Highway
Dallas, Texas 75220
November 25, 1997
REGISTRATION OF PLEDGE OF UNCERTIFICATED SECURITY
BMC Development No. 1 Limited Partnership
Future Acquisition 1995, Ltd.
c/o Future Exploration Corporation, general partner
2351 West Northwest Highway
Dallas, Texas 75220
Attention: Secretary
Ladies and Gentlemen:
The undersigned are the registered owners of the entire general and
limited partnership interest in each of BMC Development No. 1 Limited
Partnership and Future Acquisition 1995, Ltd., each a Texas limited partnership
(each a "Partnership").
The undersigned have pledged their entire general and limited
partnership interest in each Partnership registered to the undersigned to Energy
Capital Investment Company PLC, EnCap Equity 1994 Limited Partnership and Gecko
Booty 1994 I Limited Partnership ("Sellers"). Please register this pledge in the
partnership records of each Partnership and upon such registration, execute this
letter in the space below and return an executed original to the undersigned at
the above address and to Sellers c/o EnCap Investments L.C., 1100 Louisiana,
Suite 3150, Houston, Texas 77002, Attention: Colin Nisbeth.
FUTURE ENERGY CORPORATION,
a Nevada corporation
By: /s/ B. CARL PRICE
--------------------------------
B. Carl Price, President
FUTURE PETROLEUM CORPORATION,
a Texas corporation
By: /s/ B. CARL PRICE
--------------------------------
B. Carl Price, President
AS OF THIS 25th DAY OF NOVEMBER, 1997, the undersigned hereby CONSENTS TO AND
ACKNOWLEDGES the foregoing pledge, and the undersigned did register the
foregoing pledge in its limited partnership records of each Partnership
FUTURE PETROLEUM CORPORATION,
a Texas corporation, general partner of each Partnership
By: /s/ B. CARL PRICE
--------------------------------
B. Carl Price, President
<PAGE> 1
EXHIBIT 21
SCHEDULE OF SUBSIDIARIES
Future Petroleum Corporation, a Texas corporation
Alaska Eldorado Gold, a Nevada corporation
Future Energy Corporation, a Nevada corporation
Future CAL-TEX Corporation, a Texas corporation
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,241,000
<SECURITIES> 0
<RECEIVABLES> 2,644,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,885,000
<PP&E> 46,640,000
<DEPRECIATION> (1,566,000)
<TOTAL-ASSETS> 51,948,000
<CURRENT-LIABILITIES> 11,919,000
<BONDS> 0
0
1,000
<COMMON> 223,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 51,948,000
<SALES> 3,663,000
<TOTAL-REVENUES> 3,679,000
<CGS> 3,925,000
<TOTAL-COSTS> 3,925,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,238,000
<INCOME-PRETAX> (1,465,000)
<INCOME-TAX> (287,000)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 2,586,000
<CHANGES> 0
<NET-INCOME> 1,408,000
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
</TABLE>
