<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934(FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934(NO FEE REQUIRED)
For the transition period from _______________to ______________
COMMISSION FILE NUMBER 1-9933
-----------------------------
AMERAC ENERGY CORPORATION
(FORMERLY WOLVERINE EXPLORATION COMPANY)
(Exact name of Registrant as specified in its charter)
STATE OF DELAWARE 75-2181442
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization Identification No.)
700 LOUISIANA, SUITE 3330
HOUSTON, TEXAS
(Address of principal 77002
executive offices) (Zip Code)
Registrant's telephone number, including area code: 713/223-1833
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
================================================================================
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
- --------------------------------------------------------------------------------
Common Stock (Par Value $.05 per share) Boston Stock Exchange
$4.00 Senior Preferred Stock
(Par Value $1.00 per share) Boston Stock Exchange
================================================================================
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports required
by section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ X ]
As of March 20, 1996, the aggregate market value of the registrant's Common
Stock and $4.00 Senior Preferred Stock held by non-affiliates was approximately
$5,859,000 and $2,233,000 respectively.
The number of shares outstanding of the registrant's Common Stock as of March
22, 1996, was 24,047,663.
<PAGE>
ITEM 1. BUSINESS
- ----------------
THE COMPANY
Amerac Energy Corporation (the "Company" or "Amerac") is engaged in the
acquisition, development and enhancement of and exploration for oil and gas in
the United States. While the Company was formed in 1969, it is only since mid
1994 that the Company has been focused on growth through acquisitions and
exploitation. Since that time, the Company has grown its asset base
substantially. Total proved reserves from December 31, 1994 to December 31,
1995, including the Fremont Energy Corporation ("Fremont") acquisition increased
from 9.2 billion cubic feet equivalent ("Bcfe") at December 31, 1994 to 26.2
Bcfe at December 31, 1995 and increase of 184.8%. Since the beginning of 1995,
including the Fremont acquisition which was closed in January 1996, the Company
has increased its estimated undiscounted future net cash flows assuming
unescalated prices prevailing at the time from $11.0 million at December 31,
1994, to $36.9 million, a 235% increase. The Company's finding and development
costs for 1995 including the Fremont acquisition was $0.56 per million cubic
feet equivalent ("Mcfe"). The Company also completed an exchange offer in 1995
which reduced its obligations to its preferred stockholders by $53.4 million.
With the approval by the stockholders of an amendment to the Certificate of
Incorporation, as disclosed in the Company's 1996 proxy statement, the Company
will completely eliminate its preferred stock and expects to be in a stronger
position to raise additional capital in the future to fund its plan of growth.
The Company is headquartered in Houston, Texas. At December 31, 1995,
Amerac had four employees.
RECENT DEVELOPMENTS
On March 19, 1996, the Company filed its 1996 proxy statement which
includes two significant issues to be voted on by the stockholders. The first
item is an amendment to the Certificate of Designations of the Company's
outstanding preferred stock. This amendment provides for the conversion of each
outstanding share of the $4.00 Senior Preferred Stock ("Senior Preferred") into
nine (9) shares of Common Stock. The Board of Directors has determined that it
would be in the Company's best interest to eliminate the Senior Preferred for
the following reasons: (i) commencing in 1997 the Company will have to start
paying dividends on the Senior Preferred in cash, except in certain
circumstances, which would diminish its cash available for acquisitions, (ii) if
the Company misses a dividend payment, the holders of the Senior Preferred will
have the right to elect 80% of the Company's Board of Directors, (iii) the terms
of the Senior Preferred prohibit the Company from issuing any new preferred
stock that is either pari-passu or senior to it, (iv) conversion of the Senior
Preferred increases the Common Stock float in the market and (v) eliminates the
liquidating value of the Preferred Stock.
The second item included in the proxy statement is a proposal to increase
the number of authorized shares of the Company's Common Stock from 50 million to
100 million. As the Company continues its acquisition efforts, shares of the
Company's Common Stock may be used to enhance the Company's ability to make
acquisitions and reduce risk from over leveraging with debt. The Company, for
example, successfully used equity in the Fremont acquisition. Assuming the
successful conversion of the Senior Preferred into 16.1 million shares of Common
Stock, the Company will have, issued and outstanding, 40.5 million shares of
Common Stock.
In January 1996, the Company acquired the Common Stock of Fremont, an
Oklahoma based oil and gas company, for $7 million paid in cash and 3.3 million
shares of Common Stock of the Company. Fremont has 131 wells located
predominately in central Oklahoma and Kansas concentrated in three major
fields. Fremont's estimated net proved reserves at December 31, 1995, totaled
approximately 13.4 Bcfe.
In conjunction with the Fremont acquisitions, the Bank Credit Agreement was
amended on January 16, 1996, to among other things, increase the Borrowing Base
to $10.6 million with a mandatory reduction of $185,000 each month commencing
February 1, 1996. At March 26, 1996, the Company had $9.7 million outstanding
and had borrowing capacity of $300,000 under the Bank Credit Agreement.
Also in January 1996, the Company announced the execution of an agreement
with American Trading and Production Corporation ("Atapco") for the evaluation
and development of the Company's 22,000 acre Sacatosa project. Over 35 million
barrels of oil has been produced from the adjacent Sacatosa field, a shallow
waterflood project. Atapco has acquired 50% of Amerac's interest in the acreage
and has assumed operations.
1
<PAGE>
During the third quarter of 1995, the Company participated in the
recompletion of the South Timbailer 198 A-3 well in the Buliminella I-A zone.
This recompletion was performed after the Buliminella I-C zone ceased to be
productive, as expected. The Company has a 23.1% net working interest (19.3 %
net revenue interest) in this property. The recompletion converted 2.6 Bcf of
gas reserves from proved non-producing to proved developed producing. This zone,
as of March 15, 1996, was producing, net to the Company, approximately 4.0
million cubic feet of gas ("Mmcf") per day and approximately 97 barrels of
oil/condensate per day.
In October 1995, the Company acquired a portion of the Truby field located
in Jones County, Texas for $650,000. This acquisition included a 320-acre lease
with two producing wells and a 200-acre undeveloped lease. The additional
acreage will provide the Company with both proved and probable drilling
locations. Total estimated net proved reserves acquired are 119,500 barrels of
oil equivalent ("BOE"). The Company acquired a 100% working interest and a 77%
net revenue interest in these wells.
In July 1995, the Company filed a registration statement with the
Securities and Exchange Commission for the purpose of registering the 3,651,195
shares of Common Stock held by Investment Limited Partnership ("ILP") who in
turn sold the shares to certain individuals. Three of these individuals are
directors of the Company. Messrs. Jeffrey B. Robinson, President and Chief
Executive Officer, Kenneth R. Peak and William P. Nicoletti are Directors of the
Company and acquired from ILP 800,000, 200,000 and 200,000 shares respectively.
In May 1995, the Company acquired the Myrtle B field in Loving County,
Texas for $725,000. This acquisition included four producing wells and four
proved undeveloped locations with total estimated proved reserves of 359,600
BOE. The Company has a 100% working interest and a 75% revenue interest in this
property.
On May 12, 1995, the Company entered into a $15 million revolving line of
credit agreement with Bank One, Texas National Association ("Bank Credit
Agreement"). The Bank Credit Agreement is a two-year facility with interest due
monthly and principal due at May 31, 1997. The Bank Credit Agreement is secured
by all of the Company's properties, and contains various restrictive covenants
which may, if not met, cause the Company to be in default or reduce its access
to additional borrowing. The borrowing base at December 31, 1995 was $4,000,000.
At December 31, 1995, $3,547,000 was outstanding under the Bank Credit
Agreement, accruing interest at the Bank One Texas Base Rate plus three-quarter
percent equaling 9.25% at December 31, 1995. In conjunction with the Fremont
acquisitions, the Bank Credit Agreement was amended on January 16, 1996, to
among other things, increase the Borrowing Base to $10.6 million with a
mandatory reduction of $185,000 each month commencing February 1, 1996.
In April 1995, the Company acquired the Cosden Field in Bee County, Texas
for $2.9 million. This field produces from three wells and the net proved
reserves were 4.6 Bcfe. The Company has a 68% working interest and a 52%
revenue interest in the property.
In December 1995, the Company sold its interest in the Northwest Arapahoe
field in Colorado for $1.0 million to the operator. This was a waterflood
project that, in the Company's view, had no future development potential. This
property was sold for substantially more than its book value resulting in a $0.7
million gain on sale.
In March 1995, the Company offered to exchange, one share of its Senior
Preferred, with a stated value of $4.00 per share, par value $1.00 per share and
an initial dividend rate of $.36 per share, and 2.5 shares of Common Stock (the
"Exchange Offer") for each outstanding share of the Company's $2.25 Convertible
Exchangeable Preferred Stock ("Old Preferred "), which carried a stated value of
$25.00 per share and a dividend rate of $2.25 per share. At the time of the
Exchange Offer, the Company had dividends in arrears on the Old Preferred of
approximately $14.4 million and the Old Preferred carried a liquidation
preference of approximately $45.6 million. The Exchange Offer was approved by
the holders of a majority of the Common Stock and by approximately 90 % of the
holders of Old Preferred. As a result, 1,634,305 shares of Old Preferred were
exchanged for 1,634,305 shares of Senior Preferred and 4,079,049 shares of
Common Stock. Holders
2
<PAGE>
of Old Preferred that did not exchange received 2.5 shares of Common Stock for
each share of Old Preferred not exchanged, resulting in the issuance of 470,677
shares of Common Stock. This Exchange Offer eliminated all Old Preferred and
related dividend arrearages.
At the date of the Exchange Offer, the Company discounted the Senior
Preferred by an amount which would yield an effective dividend rate of 15%
during the initial years while the stated dividend rate is 9.0%. Accordingly,
the Company credited retained earnings and debited additional paid in capital
for approximately $1.4 million representing the discount amount. The discounted
amount is being amortized over a five year period and does not effect current
period income or loss, except for net income (loss) applicable per common share.
The Senior Preferred provides, among other things, the Company the option
to pay the quarterly dividends, which commenced January 1, 1995, for the first
two years in either cash or additional shares of Senior Preferred. The Company
currently plans to pay these dividends in shares of Senior Preferred. The
Company issued 152,042 shares of Senior Preferred for 1995 dividends.
Beginning January 1, 1997, the Company has, under certain conditions, the option
to pay the dividends in cash or Common Stock. The annual dividend rate
increases from $.36 per share to $.60 at January 1, 2000. The Company has the
option of redeeming the Senior Preferred at face value at anytime. If the
Company fails to pay a quarterly dividend on the Senior Preferred, then the
holders of the Senior Preferred have the right to elect 80 % of the Board of
Directors.
At the 1996 annual meeting of stockholders, the Company will be submitting
to its stockholders a proposal to amend its Certificate of Designations of the
Senior Preferred, to provide for the conversion of each outstanding share of the
Senior Preferred into nine (9) shares of Common Stock.
SIGNIFICANT OIL AND GAS PURCHASERS
Oil sales are made on a day-to-day basis or under a short-term contract at
approximately the current area posted price. The loss of any oil purchaser would
not be expected to have an adverse effect upon the Company's operations.
Following is a listing of significant oil purchasers during the three-year
period ended December 31, 1995, and the approximate percentage of oil revenue
derived from each:
<TABLE>
<CAPTION>
PURCHASERS PERCENT
- ---------- -------------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Essex Refining Company 33 - -
Marathon 32 55 34
TEMCO Liquids Company 19 16 11
Union Pacific Fuels, Inc. 9 10 15
Sun Refining & Marketing Company - 13 31
</TABLE>
A majority of the Company's natural gas is sold pursuant to short-term
contracts at prices which fluctuate at a premium to the spot market. Under the
term of the contract, the gas purchasers may elect to purchase less gas than the
wells are able to produce, and the Company may be unable to sell the excess
production to other purchasers. Following is a listing of the significant
natural gas purchasers during the three-year period ended December 31, 1995, and
the approximate percentage of natural gas revenues derived from each:
<TABLE>
<CAPTION>
PERCENT
-------
PURCHASERS 1993 1994 1995
- ---------- ---- ---- ----
<S> <C> <C> <C>
TEMCO Liquids Company 83 77 39
MG Natural Gas Corporation - - 18
</TABLE>
There are no other customers of the Company which individually accounted
for more than 10% of the Company's revenues during the three years ended
December 31, 1995.
3
<PAGE>
OIL AND GAS OPERATIONS
The following tables set forth information with respect to Amerac's
properties and drilling and production activities.
As used in these tables, "Gross" refers to the total acres or wells in
which Amerac has an interest; "Net" as it applies to acres or wells refers to
gross acres or wells multiplied by the percentage interest owned by Amerac;
"producing wells" include all wells estimated by independent petroleum engineers
to be wells capable of economic production, including shut-in wells; "Mcf"
refers to one thousand cubic feet of natural gas; "MMcf" refers to one million
cubic feet of natural gas; "Bbl" refers to one barrel of crude oil or other
liquid hydrocarbons; "BOE" refers to one barrel of crude oil on an equivalent
basis using a 6 Mcf to 1 Bbl gas to oil conversion ratio; and "Mbbl" refers to
one thousand barrels of crude oil or other liquid hydrocarbons.
Oil and Gas Acreage. The following table sets forth Amerac's acreage
-------------------
position at December 31, 1995:
<TABLE>
<CAPTION>
DEVELOPED UNDEVELOPED
--------- -----------
GROSS NET GROSS NET
--------- ------- ------ ------
<S> <C> <C> <C> <C>
Colorado 2,310 709 3,463 973
Kansas 640 224 - -
Texas 3,680 1,901 2,205 1,227
Utah 2,160 191 18,084 4,586
Wyoming 2,473 1,041 14,079 3,522
Offshore Louisiana 6,328 1,463 - -
------ ----- ------ ------
Totals 17,591 5,529 37,831 10,308
====== ===== ====== ======
</TABLE>
Productive Wells. This table sets forth both the gross and net productive
----------------
wells at December 31, 1995.
<TABLE>
<CAPTION>
GROSS NET
----------------------- -------------------------
SHUT-IN SHUT-IN
OIL GAS GAS OIL GAS GAS
--- --- ------- --- --- -------
<S> <C> <C> <C> <C> <C> <C>
Colorado 3 2 - 1.1 0.6 -
Kansas - 1 - - 0.3 -
Wyoming 1 - - 0.1 - -
Utah 3 - - 0.1 - -
Texas 12 13 2 8.7 5.2 1.0
Offshore-
Louisiana - 3 3 - 0.6 0.6
-- -- - ---- --- ---
Totals 19 19 5 10.0 6.7 1.6
== == = ==== === ===
</TABLE>
Drilling Activity. The following table sets forth the results of drilling
-----------------
activities for the year ended December 31, 1993, 1994 and 1995.
<TABLE>
<CAPTION>
GROSS WELLS NET WELLS
---------------------- ----------------------
TOTAL PRODUCTIVE DRY TOTAL PRODUCTIVE DRY
----- ---------- --- ----- ---------- ---
<S> <C> <C> <C> <C> <C> <C>
1993 Exploratory 1 1 - 0.3 0.3 -
Development - - - - - -
1994 Exploratory 4 4 - 1.6 1.6 -
Development - - - - - -
1995 Exploratory - - - - - -
Development 1 1 - 0.8 0.8 -
</TABLE>
4
<PAGE>
TITLE TO PROPERTIES
- -------------------
Customarily in the oil and gas industry, only a perfunctory title
examination is conducted at the time properties believed to be suitable for
drilling operations are first acquired. Prior to commencement of drilling
operations, a thorough drill site title examination is normally conducted, and
curative work is performed with respect to significant defects.
PRODUCTION
- ----------
The following table shows, for the periods indicated, net production and
revenues and average prices received by the Company per Bbl of crude oil and per
equivalent Mcf.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Production
Crude oil and condensate (Mbbls) 127 95 112 233 393
Natural gas (Mmcf) 1,349 1,332 1,467 5,425 9,125
Equivalent MMcfe 2,111 1,902 2,139 6,823 11,483
Equivalent MBOE 352 317 357 1,137 1,914
Revenues (thousands)
Crude oil and condensate $2,146 $1,449 $1,626 $ 4,345 $ 7,655
Natural gas 2,182 2,676 2,753 8,810 14,080
------ ------ ------ ------- -------
Total $4,328 $4,125 $4,379 $13,155 $21,735
====== ====== ====== ======= =======
Average price
Crude oil and condensate ($/Bbl) $16.53 $15.25 $14.52 $ 18.64 $ 19.48
Natural gas ($/Mcf) 1.62 2.01 1.88 1.62 1.54
Per equivalent Mcfe 2.05 2.17 2.05 1.93 1.89
Per equivalent BOE 12.29 13.01 12.27 11.57 11.36
Average production costs
Per equivalent Mcfe $ .53 $ .47 $ .48 $ .44 $ .44
Per equivalent BOE 3.15 2.82 2.87 2.61 2.63
</TABLE>
COMPETITION
The oil and gas acquisition market is highly competitive and, thus,
the opportunities for high rates of return on investment are limited. The price
paid for in-place oil and gas reserves is highly dependent on the forecasted oil
and gas price, which historically has been very volatile (see Price Volatility).
Many companies, with which the Company competes, possess resources far greater
than those of the Company.
The marketing of oil and gas is affected by a number of factors which
are beyond the control of the operators of the properties, the effect of which
cannot be accurately predicted. These factors include crude oil imports, the
availability of adequate pipeline and other transportation facilities, the
marketing of competitive fuels, and other matters affecting the availability of
a ready market, such as fluctuating supply and demand.
PRICE VOLATILITY
The revenues generated by the Company are highly dependent upon the
prices of oil and natural gas. Approximately
5
<PAGE>
60% of the Company's future gross revenues attributable to its proved reserves
as of December 31, 1995, is from natural gas based on an average price of
approximately $2.14 per Mcf, and the balance of such revenues is from oil based
on an average price of approximately $17.98 per barrel. In the past five years
the Company's annual average sales price for natural gas has ranged from $1.62
per Mcf in 1995 to a low of $1.54 in 1991, and its annual average sales price
for oil has ranged from a low of $14.52 in 1993 to a high of $19.48 per barrel
for 1991. Various factors beyond the control of the Company will continue to
affect oil and gas prices. (See Management's Discussion and Analysis for other
disclosures regarding oil and gas prices.)
REGULATION
The Company's operations are affected in various degrees by political
developments, federal and state laws and regulations. In particular, oil and
gas production operations and economics are affected by price controls, tax and
other laws relating to the petroleum industry, by changes in such laws and by
constantly changing administrative regulations and the interpretation and
application of such rules and regulations.
Environmental Laws. The Company's activities are subject to existing
------------------
federal and state laws and regulations governing environmental quality and
pollution control. Such laws and regulations may substantially increase the
costs of exploring for, developing or producing oil and gas and may prevent or
delay the commencement or continuation of a given operation. In the opinion of
the Company's management, its operations comply with all applicable
environmental laws and regulations; the laws and regulations have had no
material effect on the Company's operations; and the cost of such compliance has
not been material. Since most of the Company's properties are operated by other
companies, the Company relies on the operator to comply with environmental laws.
General. In most, if not all, areas where the Company conducts
-------
activities, there are statutory provisions regulating oil and gas drilling and
production. Such statutes and regulations promulgated thereunder require
permits for drilling operations, drilling bonds and reports to be filed
concerning operations and production from oil and gas wells. Many jurisdictions
restrict production to the market demand for oil and gas. Such statutes and
regulations may limit the rate at which oil and gas could otherwise be produced
from the Company's properties. Some jurisdictions have enacted statutes
prescribing ceiling prices for gas sold therein.
TAXATION
The Company's oil and gas operations are affected by certain
provisions of the Internal Revenue Code of 1986, as amended, applicable to the
petroleum industry. Current law permits the Company to deduct currently, rather
than capitalize, intangible drilling and development costs ("IDC") incurred or
borne by it. The Company, as an independent producer, is also entitled to a
deduction for percentage depletion with respect to the first 1,000 barrels per
day of domestic crude oil (and/or equivalent units of domestic natural gas)
produced by it (if such percentage depletion exceeds cost depletion).
Generally, this deduction is 15% of gross income from an oil or gas property,
without reference to the taxpayer's basis in the property. Beginning in 1991,
percentage depletion may not exceed 100% of the taxable income from any property
(computed without allowance for depletion), and is limited in the aggregate to
65% of the Company's taxable income. Any depletion disallowed under the 65%
limitation, however, may be carried forward indefinitely.
The Company has accumulated a substantial net operating loss ("NOL")
carryforward. In determining the amount of NOL available after an "ownership
change," the use of a loss corporation's carry forwards is limited annually to a
prescribed rate times the value of the loss corporation's stock immediately
before the ownership change. In general, an ownership change occurs if
ownership of more than 50% in value of the stock of the loss corporation changes
during the three-year period preceding the test date. Under federal tax law,
the amount and availability of loss carryforwards are subject to a variety of
interpretations and restrictive tests applicable to the Company. Under the
Code, the utilization of such loss carryforwards could be limited or effectively
lost upon certain changes in ownership. Application of these and other tests
requires certain factual determinations and legal interpretations as to which
there is little or no guidance. The Company believes it is presently limited to
$11.0 million per taxable year of NOL utilization relating to losses incurred
prior to the ownership change in December, 1989 (see Note 5 to the Consolidated
Financial Statements). Any unused NOL utilizations accumulate for use in
subsequent taxable years, subject to the 15-year limitation on NOLs. In
addition, any losses occurring in years after the ownership change are added
(without limitation) to arrive at the amount of NOL available for use in any
6
<PAGE>
post change year. Subsequent additional ownership changes could result in
adjustments to the annual limitation amount. The Company at December 31, 1995,
had a total NOL carryforward of approximately $201 million for regular tax
purposes and approximately $174 million for alternative minimum tax purposes.
The amount available for use for 1996 is approximately $115 million ($105
million for alternative minimum tax purposes). See Note 5 to the Consolidated
Financial Statements for additional tax disclosures.
ESTIMATED NET QUANTITIES OF PROVED OIL AND GAS RESERVES AND PRESENT VALUE OF
ESTIMATED FUTURE NET REVENUES
The Company's domestic net proved oil and gas reserves have been
prepared by the Company and audited by Ryder Scott Company as of December 31,
1994 and 1995 and prepared by Netherland, Sewell and Associates, Inc. as of
December 31, 1993. See Note 10 to the Consolidated Financial Statements for
disclosure of reserve amounts.
ITEM 2. PROPERTIES
- ------------------
The Company is committed to various lease contracts for office space
and miscellaneous office equipment expiring at various intervals through 1997
with total minimum payments aggregating $114,000 at December 31, 1995. The
minimum annual rental commitments are $72,000 for 1996 and $42,000 for 1997. A
portion of this obligation is offset by a sublease with aggregate future
receipts of $76,000 over the term of the sublease.
See Item 1. Business - Oil and Gas Acreage, Productive Wells and
Estimated Net Quantities of Proved Oil and Gas Reserves and Present Value of
Estimated Future Net Revenues for other properties.
ITEM 3. LEGAL PROCEEDINGS
- -------------------------
In February 1995, Geodyne Resources, Inc. ("Geodyne") filed an
Original Third-Party Petition naming the Company as a third-party defendant.
The claim arose out of a settlement of a 1986 accident by Union Pacific
Resources Company ("UPRC"), operator of a property in Summit County, Utah. UPRC
subsequently sued Geodyne for a proportionate share of the lawsuit settlement
involving the 1986 well accident. Geodyne purchased the property from the
Company in 1988 and is claiming that the Company is liable under the indemnity
provisions of the 1988 Purchase and Sale Agreement between the Company and
Geodyne. The amount of the claim against the Company is approximately $176,000.
The Company has filed a general denial and is reviewing this matter with its
insurance carriers and counsel. The Company has been indemnified for any
shortfall in the insurer's payment on the claim.
The Company is not currently a party to any other litigation which
would have a material impact on its financial statements. However, due to the
nature of its business, certain legal or administrative proceedings arise in the
ordinary course of its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -----------------------------------------------------------
The Company had no matters submitted to security holders for vote in
the fourth quarter of 1995.
7
<PAGE>
PART II
ITEM 5. MARKET FOR THE COMMON STOCK AND RELATED MATTERS
- -------------------------------------------------------
PRICE RANGE OF COMMON STOCK
The Company's securities currently are traded on the "Pink Sheets" on
the over-the-counter market and the Boston Stock Exchange. At March 1, 1996,
there were approximately 6,000 holders of record of the Common Stock.
During the past three years, trading of the Common Stock has been
extremely limited. The following table sets forth the reported high and low
sales prices on the Boston Stock Exchange for 1993 and 1994 and the reported
high bid and low offer prices quoted by National Quotations Bureau, Inc. for
1995.
<TABLE>
<CAPTION>
PRICES
------
HIGH LOW
------ -----
<S> <C> <C>
1993
First Quarter $.06 $.02
Second Quarter .06 .01
Third Quarter .06 .02
Fourth Quarter .06 .03
1994
First Quarter .13 .02
Second Quarter .13 .06
Third Quarter .11 .06
Fourth Quarter .16 .06
1995
First Quarter .20 .03
Second Quarter .35 .08
Third Quarter .22 .08
Fourth Quarter .22 .08
</TABLE>
COMMON STOCK DIVIDENDS
The Company has not paid any Common Stock dividends since its
organization, and it is not contemplated that it will pay such dividends in the
foreseeable future. The Company's ability to declare and pay dividends on
Common Stock is restricted under certain conditions under the Certificate of
Designations defining the provisions of the Senior Preferred and its bank loan
agreement.
8
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
- -------------------------------
The following table sets forth five year selected financial data:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Income statement data:
Total operating revenues
(excluding interest income) $ 4,328 $ 4,128 $ 4,555 $13,263 $ 21,769
Exploration expenses, including
dry hole costs and impairment
of unproved properties 246 345 851 3,911 3,527
Gain (loss) on sale of properties 850 (102) 2,322 1,691 23
Income (loss) before
extraordinary items 208 272 862 (4,550) (9,630)
Extraordinary items - - 3,731 - -
Net income (loss) 208 272 4,593 (4,550) (9,630)
Net income (loss) applicable to
common stockholders (599) (3,828) 493 (8,670) (13,750)
Net income (loss) per common share
Loss before extraordinary items $(.03) $(.24) $ (.20) $(.55) $(.88)
Extraordinary items - - .23 - -
------- ------- ------- ------- --------
Net income (loss) per common share $(.03) $(.24) $ .03 $(.55) $(.88)
======= ======= ======= ======= ========
Average share outstanding: 19,594 15,884 15,877 15,757 15,670
Net cash flow provided by operations $ 643 $ 1,059 $ 784 $ 8,963 $ 15,553
Balance sheet data:
Oil and gas properties, net of
accumulated depreciation,
depletion and amortization $ 8,594 $ 5,059 $ 4,494 $10,081 $ 23,790
Total assets 11,194 9,162 10,763 16,137 35,816
Long-term obligations 4,594 542 4,027 3,997 12,896
Preferred dividends 807 - - - 1,030
Stockholders' equity 5,994 5,754 5,482 888 5,400
</TABLE>
9
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- -------------------------------------------------------------------------------
OF OPERATIONS
-------------
With the exception of historical information, the matters discussed
herein are forward-looking statements that involve risk and uncertainties
including, but not limited to, oil and gas price fluctuations, economic
conditions, interest rate fluctuations, the regulatory and political
environments and other risk indicated in filings with the Securities and
Exchange Commission.
CAPITAL RESOURCES AND LIQUIDITY
- -------------------------------
HISTORICAL OVERVIEW
LIQUIDITY ISSUES
The Company has improved its overall financial condition in the last three
years through restructuring its equity and its financing capabilities with its
bank. The Company however, must continually seek additional sources of financing
in order to support its acquisition activities. The Company as a result of its
1995 acquisition activities has improved the overall reserve to production ratio
of its properties from 5.7 years to 6.7 years. The Company financed these
acquisitions, including the Fremont acquisition, through the use of working
capital, bank borrowings and equity. The Company intends to continue this
process to add stockholder value. The Company's planned capital expenditure for
development and exploration in 1996 is approximately $5.5 million. The Company
currently plans to utilize internally generated cash flows and bank financing to
support this activity together with other types of financing, which may be more
expensive, such as mezzanine, production payments and additional equity
financing. However, there is no assurance that the Company will be successful in
obtaining such additional financing. At this date, the Company has essentially
fully utilized its bank financing capabilities and therefore future bank
borrowings will be limited by its additions to its borrowing base. Management
believes the cash flow from opertions, cash on hand and bank borrowings will be
sufficient to fund its planned capital expenditures and bank repayments during
1996.
To provide additional capital for the Company to utilize in its acquisition
and exploitation program, the Company may seek to sell additional equity. The
market for the Company's equity is competitive and, due to the size of the
Company, the results of any such offering may not be successful. Without such
additional capital, the growth rate of the Company may be restricted. Also, the
sale of additional equity and the utilization of equity in acquisitions may
further limit the Company's utilization of its tax net operating loss carry
forward.
RECENT DEVELOPMENTS
On March 19, 1996, the Company filed its 1996 proxy statement which
includes two significant issues to be voted on by the stockholders. The first
item is an amendment to the Certificate of Designations of the Company's
outstanding preferred stock. This amendment provides for the conversion of each
outstanding share of the Senior Preferred into nine (9) shares of Common Stock.
The Board of Directors determined that it would be in the Company's best
interest to eliminate the Senior Preferred for the following reasons: (i)
commencing in 1997 the Company will have to start paying dividends on the Senior
Preferred in cash except in certain circumstances, which diminishes cash
available for acquisitions, (ii) if the Company misses a dividend payment, the
holders of the Senior Preferred will have the right to elect 80% of the
Company's Board of Directors, (iii) the terms of the Senior Preferred prohibit
the Company from issuing any new preferred stock that is either pari-passu or
senior to it, (iv) conversion of the Senior Preferred into Common Stock will
increase the Common Stock float in the market and (v) eliminate the liquidating
value of the Senior Preferred.
The second item included in the proxy statement is a proposal to increase
the number of authorized shares from 50 million to 100 million. As the Company
continues its acquisition efforts, shares of the Company's Common Stock may be
used to enhance the Company's ability to make acquisitions and reduce risk from
over leveraging with debt. The Company, for example, successfully
used equity in the Fremont acquisition. Assuming the successful conversion of
the Senior Preferred, the Company will have, issued and outstanding 40.5
million shares of Common Stock.
On May 12, 1995, the Company entered into a $15 million revolving line of
credit agreement with BankOne, Texas National Association ("Bank Credit
Agreement"). The Bank Credit Agreement is a two-year facility with interest due
10
<PAGE>
monthly and matures at May 31, 1997. The Bank Credit Agreement is
secured by all of the Company's properties, and contains various restrictive
covenants which may, if not met, cause the Company to be in default or reduce
its access to additional borrowing. The borrowing base at December 31, 1995 was
$4,000,000. At December 31, 1995, $3,547,000 was outstanding under the Bank
Credit Agreement, accruing interest at the BankOne Texas Base Rate plus three-
quarter percent equaling 9.25% at December 31, 1995. In conjunction with the
Fremont acquisition, the BankOne Credit Agreement was amended on January 16,
1996, to among other things, increase the Borrowing Base to $10.6 million with a
mandatory reduction of $185,000 each month commencing February 1, 1996. See Note
3.
FUTURE STRATEGY
With consummation of the Exchange Offer and the conversion of the Senior
Preferred takes place, the Company expects to be in a better position to raise
new capital. The Company plans to concentrate initially on acquisitions where a
substantial portion of the value is in proved developed producing reserves which
are currently generating cash flow. Management is relatively impartial as to the
acquisition of gas versus oil. Although management would prefer operatorship of
the properties, they do not intend to pass up any opportunities for that reason.
At this point, the Company has not restricted itself to seeking acquisitions in
specific geographical regions.
Along with the acquisition of properties, the Company will look for ways to
exploit existing and acquired reserves by increasing production rates,
accelerating reserve recoveries and improving and extending the economic
viability of the properties. Exploitation activities may include workovers,
recompletions, new stimulation technology, development drilling, horizontal
drilling, pressure maintenance projects, and other methods of enhanced recovery.
While the Company is actively pursuing these avenues, there can be no
assurance that it will have successful results in its acquisition, exploitation
and exploration efforts. There is a tremendous amount of competition in the
industry and the prices paid for in-place reserves make it difficult to achieve
attractive rates of return.
ACQUISITIONS OF ASSETS
In January 1996, the Company acquired Fremont, an Oklahoma based oil and
gas company for $7 million paid in cash and 3.3 million shares of the Company's
Common Stock. Fremont has 131 wells located predominately in central Oklahoma
and Kansas concentrated in three major fields. Fremont's estimated net proved
reserves at December 31, 1995 totaled approximately 13.4 Bcfe.
Also in January 1996, the Company announced the execution of an agreement
with Atapco for the evaluation and development of the Company's 22,000 acre
Sacatosa project. Over 35 million barrels of oil has been produced from the
Sacatosa field, a shallow waterflood project. Atapco has acquired 50% of
Amerac's interest in the acreage and has assumed operations.
In October 1995, the Company acquired a portion of the Truby field located
in Jones County, Texas for $650,000. This acquisition included a 320-acre lease
with two producing wells and a 200-acre undeveloped lease. The additional
acreage will provide the Company with both proved and probable drilling
locations. Total estimated net proved reserves acquired are 119,500 BOE. The
Company acquired a 100% working interest and a 77% net revenue interest in these
wells.
In May 1995, the Company acquired the Myrtle B field in Loving County,
Texas for $725,000. This acquisition included four producing wells and four
proved undeveloped locations with total estimated proved reserves of 359,600
BOE. The Company has a 100% working interest and a 75% revenue interest in the
property
In April 1995, the Company acquired the Cosden field in Bee County, Texas
for $2.9 million. This field produces from three wells and the net proved
reserves were 4.6 Bcfe. The Company has a 68% working interest and a 52% net
revenue interest in the property.
For pro forma effect of these acquisitions see Note 9.
11
<PAGE>
SALE OF OIL AND GAS PROPERTIES
In December 1995, the Company agreed to sell its interest in the Northwest
Arapahoe field in Colorado for $1.0 million to the operator. This was a
waterflood project that had no future development potential. This property was
sold for substantially more than its book value resulting in a $0.7 million gain
on sale.
1995 SOURCES AND USES OF CASH
During 1995, the Company received $643,000 from operations, $140,000 from
the sale of producing properties and borrowed $3.5 million. The Company's
primary uses of cash were $5.5 million for the acquisition of oil and gas
properties, $1.9 million to repay subordinated debt and $94,000 for other
property leaving a net use of cash for the year of $3.3 million and a cash
balance at December 31, 1995 of $144,000.
1996 CAPITAL REQUIREMENTS
During 1996, the Company will require funds for continuing the Company's
acquisition and development program. The Company's planned capital expenditures
for development and exploration in 1996, is approximately $5.5 million. The
Company plans to fund acquisition and development with existing cash, cash flow
from operations and bank debt, using any acquired properties, as well as
existing properties as collateral. At March 26, 1996, the Company had $9.7
million outstanding under its Bank Credit Agreement and has borrowing capacity
of $300,000 thereunder. The Company may also issue equity as either part of an
acquisition or in order to raise additional capital. The Company may also raise
additional capital from other forms of financing such as bank, mezzanine,
production payments and equity financing. However, there is no assurance that
the Company will be successful in obtaining such additional financing. The
Company plans to continue paying the dividends during 1996 on the Senior
Preferred in kind.
RESULTS OF OPERATIONS
1995 COMPARED WITH 1994
Operations for 1995 resulted in net income of $208,000 (a loss of $.03
applicable per common share) as compared to net income of $272,000 (a loss of
$.24 applicable per common share) for the comparable period in 1994. The
increase in net income resulted principally from a net gain on sales of various
producing properties and other assets totaling $850,000 as opposed to a
$102,000 loss on sales in 1994. This increase in revenues in 1995 versus 1994
was affected by the recognition of a gain in 1994 related to the settlement of
contractual obligations (see Note 6 to the consolidated Financial Statements)
in the amount of $474,000, reduction of interest income and increases in
expenses, except exploration expenses and administrative expenses which were
constant.
Oil and gas revenues increased from $4.1 million in 1994 to $4.3 million in
1995 as a result of increases in both oil and gas production. Average price for
the year increased for oil from $15.25 per barrel in 1994 to $16.53 per barrel
for 1995 and the average price for natural gas decreased from $2.01 per Mcf for
1994 to $1.62 per Mcf for 1995. Oil production increased to 348 barrels per
day in 1995 from approximately 260 barrels per day in 1994 and gas production
increased from approximately 3.6 million cubic feet of gas per day in 1994 to
3.7 million cubic feet of gas per day for the comparable period in 1995.
The most significant increase in total revenue related to the gain or loss
on sale of properties. During 1994, the Company recorded a loss of $102,000 from
the sale of property, primarily warehouse inventories and other small items.
During 1995, the Company recognized a $850,000 gain on sales of properties,
$736,000 related to Northwest Arapahoe and a $106,000 gain on the sale of Riley
Ridge Properties.
Lease operating expenses increased from $894,000 during 1994 to $1.1
million during 1995 as a result of acquisition activity and workover expense.
Exploration expenses decreased from $345,000 during 1994 to $246,000 for 1995 as
the Company discontinued substantially all of its exploration activities. The
1995 expenses are related to 3D seismic for field
12
<PAGE>
extension for the North Blackwell Field.
Depreciation, depletion and amortization also increased from $1.2 million
during 1994 to $1.7 million during 1995 due to both an increase in overall
production and investment in oil and gas properties and the downward revisions
to reserves, primarily at South Timbalier 198, offshore Louisiana (see Note 10
to the Consolidated Financial Statements for a reconciliation of the reserves
from year to year). Administrative expenses remained relatively constant.
Interest expense increased from $229,000 in 1994 to $237,000 in 1995 as the
Company's debt increased due to acquisitions made using the Bank Credit
Agreement, which had an outstanding balance of $3.5 million at year end 1995.
1994 COMPARED WITH 1993
Operations for 1994 resulted in net income of $272,000 (a loss of $.24
applicable per common share) as compared to net income of $4.6 million ($.03
applicable per common share) for the comparable period in 1993. The decrease in
net income resulted from a $3.7 million extraordinary gain in 1993 and a decline
in total revenues (total decrease of $2.3 million), partially offset by a
decrease in total expenses (total decrease of $1.7 million). Additionally, the
Company recognized a $474,000 gain in 1994 relating to the settlement of
contractual obligations (see Note 6 to the Consolidated Financial Statements).
Oil and gas revenues decreased slightly from $4.4 million in 1993 to
$4.1 million in 1994 as a result of declines of both oil and gas production.
Average prices for the year increased for both products with oil increasing from
$14.52 per barrel in 1993 to $15.25 per barrel for 1994 and the average price
for natural gas increased from $1.88 per Mcf for 1993 to $2.01 per Mcf for 1994.
The gas price increased due to the recovery of $289,000 by El Paso Natural Gas
Company of gas at $3.25 per Mcf relating to a gas contract settlement made in
1988. Without these gas sales, the price would have remained relatively constant
from year to year. However, even with the increase in the sales price, the total
revenue declined as oil production declined from over 300 barrels per day in
1993 to approximately 260 barrels per day in 1994 and gas production declined
from approximately 4 million cubic feet of gas per day in 1993 to 3.6 million
cubic feet of gas per day for the comparable period in 1994.
The most significant decline in total revenue related to the gain or
loss on sale of properties. During 1993, the Company recognized $2.3 million on
the sale of properties relating to the sale of Colorado properties and the
settlement of the offshore facility financing with Union Pacific Resources.
During 1994, the Company recorded a loss of $102,000 from the sale of property,
primarily warehouse inventories and other small items.
The Company realized savings in all categories of expenses. Lease
operating expenses declined from $1.0 million during 1993 to $894,000 for 1994,
primarily as a result of the exchange of three offshore blocks for the offshore
facility financing obligation during 1993. Exploration expenses decreased from
$851,000 during 1993 to $345,000 for 1994 as the Company disposed of its
exploration subsidiary, Lance Exploration, in July, 1994 and discontinued
substantially all of its exploration activities.
Depreciation, depletion and amortization also declined from $1.6
million during 1993 to $1.2 million during 1994 due to both a decrease in
overall production and the upward revisions to reserves, primarily at South
Timbalier 198, offshore Louisiana (see Note 10 to the Consolidated Financial
Statements for a reconciliation of the reserves from year to year).
Administrative expenses also decreased from $2.1 million in 1993 to less than
$1.8 million during 1994 relating to further cost reductions and the
discontinuation of the exploration program and the sale of Lance Exploration.
Interest expense also declined from $581,000 to $229,000 as the
Company continued to pay down its debt obligations by retiring additional
subordinated debt and the settlement and elimination of the offshore facility
financing during 1993. Total interest bearing debt at December 31, 1994 included
only the $50,000 of bank debt and $1.9 million of subordinated debt due in May,
1995.
NEW ACCOUNTING STANDARDS
In March 1995, the FASB issued SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
("SFAS 121"), which is effective for fiscal years beginning after December 15,
1995. Effective January 1, 1996, the Company will adopt SFAS 121 which requires
that long-lived assets (i.e., property, plant and equipment) held and used by an
entity be reviewed for impairment whenever events or changes in circumstances
indicate that the net book value of the asset may not be recoverable. An
impairment loss will be recognized if the sum of the expected future cash flows
(undiscounted and before interest) from the use of the asset is less than the
net book value of the asset. The amount of the impairment loss will be measured
as the difference between the net book value of the assets and the estimated
fair value of the related assets. SFAS 121 requires that assets be grouped at
the lowest level for which there are identifiable cash flows that are largely
independent of the cash flows of other group of assets. The Company does not
expect any material impact upon adoption of SFAS 121 in the first quarter of
1996.
In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), which is effective for fiscal years
beginning after December 15, 1995. Effective January 1, 1996, the Company will
adopt SFAS 123 which establishes financial accounting and reporting standards
for stock based employee compensation plans. The pronouncement defines a
fair-value based method of accounting for an employee stock option or similar
equity instrument. However, it also allows an entity to continue to measure
compensation cost for those plans using the intrinsic-value based method of
accounting as prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"). Entities electing to
remain with the accounting as prescribed by APB 25 must make proforma
disclosures of net income and earnings per share as if the fair-value based
method of accounting defined in SFAS 123 had been applied. The Company will
continue to account for stock-based employee compensation plans under the
intrinsic method pursuant to APB 25 and will make the disclosures in its
footnotes as required by SFAS 123.
13
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ---------------------------------------------------
The information required by Item 8 is set forth in the Report of
Independent Accountants and Consolidated Financial Statements included herein
following the signature page hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- -----------------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
- --------------------------------------------------------
The executive officers of the Company are elected annually by the
Board of Directors at its first meeting held following the annual meeting of
stockholders, or as soon thereafter as necessary and convenient in order to fill
vacancies or newly created offices. Each executive officer holds office until
his death, resignation or removal or until his successor is duly elected and
qualified. Any executive officer elected or appointed by the Board of Directors
may be removed by the Board of Directors whenever in its judgment the best
interests of the Company will be served thereby, but such removal shall be
without prejudice to the contract rights, if any, of the person so removed.
The names of the members of the Board of Directors and Executive
Officers of the Company, their ages and the dates of their employment or the
dates they became Directors are set forth below.
<TABLE>
<CAPTION>
EMPLOYED DIRECTOR
NAME AGE POSITION HELD WITH THE COMPANY SINCE SINCE
---- --- ----------------------------- -------- --------
<S> <C> <C> <C> <C>
/1/Thomas J. Edelman 45 Chairman of the Board - 1992
Jeffrey B. Robinson 51 Director, President and Chief Executive Officer 1994 1994
Jeffrey L. Stevens 47 Director, Senior Vice President-
Chief Financial Officer and Secretary 1974 1992
Michael L. Harvey 48 Director - 1995
William P. Nicoletti 50 Director - 1995
Kenneth R. Peak 50 Director - 1995
Richard J. Savoie 49 Vice President - Engineering 1994 -
</TABLE>
/1/ Mr. Edelman has informed the Board of directors he will not stand for re-
election at the next annual meeting due to time constraints of his other
business activities.
Thomas J. Edelman has been a director since December 1992. In 1981,
Mr. Edelman founded a predecessor of Snyder Oil Corporation ("SOCO") where he is
currently a director and President . Prior to 1981, he was a Vice President of
the First Boston Corporation. From 1975 through 1980, Mr. Edelman was with
Lehman Brothers Kuhn Loeb Incorporated. Mr. Edelman received his Bachelor of
Arts Degree from Princeton University and his Masters Degree in Finance from the
Harvard University Graduate School of Business Administration. Mr. Edelman
serves as Chairman of the Board, President and Chief Executive Officer of Patina
Oil and Gas Corporation, a company being formed to consolidate SOCO's Wattenberg
assets with Gerrity Oil & Gas Corporation, and is a director of Command
Petroleum Limited. In addition, Mr. Edelman serves as a director of Petroleum
Heat & Power Co., Inc., a Connecticut-based fuel oil distributor, and its
affiliate Star Gas Corporation. Mr. Edelman is also Chairman of Lomak Petroleum,
Inc.
Jeffrey B. Robinson was appointed in July 1994 as President and Chief
Executive Officer and was elected to the Board of Directors at that time. Prior
to joining the Company, Mr. Robinson was Vice President of Engineering and
Operations with Amax Oil & Gas, Inc. from 1982 to 1994.
14
<PAGE>
Jeffrey L. Stevens, has been a director since January 7, 1992 and is
Senior Vice President-Chief Financial Officer and Secretary. Since May, 1991,
Mr. Stevens has also been President and Chief Executive Officer of Petroleum
Financial, Inc. ("PFI"). Mr. Stevens joined the Company in 1974.
Michael L. Harvey has been a director since March 1995. Since 1987,
Mr. Harvey has also been Chairman and Chief Executive Officer of the Gulfstar
Companies. The Gulfstar Companies explore for and develop oil and gas
exclusively in the Gulf of Mexico. Mr. Harvey is also a director of Black
Diamond Exploration Corporation, a privately-owned onshore exploration company
focused upon exploration and development in South Texas. Mr. Harvey also serves
on the advisory board of Texas A&M University College of Business.
William P. Nicoletti has been a director since March 1995. Mr.
Nicoletti is Managing Director of Nicoletti & Company, Inc., a private New York-
based investment banking firm he founded in 1991. Previously, Mr. Nicoletti was
a Managing Director and head of the Energy and Natural Resources Group of Paine
Webber Incorporated. He is a director of Star Gas Corporation, a Stamford,
Connecticut-based propane gas distributor and StatesRail L.L.C., a Dallas,
Texas-based short line railroad holding company.
Kenneth R. Peak has been a director since March 1995. Since 1990, Mr.
Peak has also been the President of Peak Enernomics, Incorporated, a company
engaged in consulting activities in the oil and gas industry. Mr. Peak is a
Director of NL Industries, Inc., a leading manufacturer of titanium dioxide,
Hogan Energy LLC, a privately held oil and gas company and Fibrebond
Corporation, a private company engaged in the manufacturing of telecommunication
shelters and prison systems. Mr. Peak also serves on the management committee of
the College of Arts and Sciences at Ohio University.
Richard J. Savoie joined the Company in August 1994, as Vice President
of Engineering. Prior to joining the Company, Mr. Savoie was Director of
Engineering from 1988 to 1994 with Amax Oil & Gas, Inc. The principal business
address of Mr. Savoie is at the Company's Executive Offices.
The entire Board of Directors serves on a year-to-year basis, and the
Executive Officers serve at the discretion of the Board of Directors.
BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
The Board of Directors held six (6) meetings during the year ended
December 31, 1995. All directors attended all such Board of Directors meetings,
with the exception of Mr. Harvey, who attended all but two meetings in 1995.
The Audit Committee of the Board of Directors is responsible for,
among other things, recommending the appointment of the independent public
accountants and reviewing their compensation; assuring that proper guidelines
are established for the dissemination of financial information; meeting
periodically with the independent accountants, the Board of Directors and
certain officers of the Company and its subsidiaries to assure the adequacy of
internal controls and reporting; reviewing consolidated financial statements
and performing any other duties or functions deemed appropriate by the Board of
Directors. During 1995, this committee met twice. Messrs. Peak, Nicoletti and
Harvey are members of the Audit Committee.
The Compensation Committee of the Board of Directors is responsible
for recommending compensation policies with respect to the directors, management
and employees of the Company. During 1995, this committee met twice. Messrs.
Peak, Nicoletti and Harvey are members of the Compensation Committee. The
Technical Committee of the Board is responsible for reviewing all property
acquisitions and the capital expenditure budget. The Technical Committee,
comprised of Messrs. Harvey and Peak, met four times in 1995.
REPORTS UNDER SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 and the rules
thereunder require the Company's executive officers and directors, and persons
who own more than ten percent (10%) of a registered class of the Company's
equity securities, to file reports of ownership and changes in ownership with
the Securities and Exchange Commission and to furnish
15
<PAGE>
the Company with copies.
Based solely on its review of the copies of such forms received by it,
or written representations from such persons, the Company is not aware of any
person who failed to file any reports required by Section 16(a) to be filed for
fiscal 1995 or prior years not previously disclosed.
ITEM 11. EXECUTIVE COMPENSATION
- -------------------------------
Pursuant to General Instruction G(3), the additional information
required by Item 11. Executive Compensation was included in the Company's proxy
statement which has been filed with the SEC, and which involves, among other
things, the election of Directors, is incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -----------------------------------------------------------------------
The following table sets forth, as of March 1, 1996, beneficial
ownership by each Director and information regarding each person known by the
Company to own of record or beneficially more than five percent of the Common
Stock or Preferred Stock of the Company:
<TABLE>
<CAPTION>
AMOUNT
BENEFICIAL OWNER TITLE OF CLASS BENEFICIALLY OWNED PERCENT OF CLASS
- ---------------- -------------- ------------------- -----------------
<S> <C> <C> <C>
William T. Smith Common Stock 1,310,679 5.5%
777 Taylor Street, Ste P-11G
Fort Worth, Texas 76102
Powell Resources, Inc. Common Stock 2,017,152 8.4%
3030 N.W. Expressway, Ste 1602
Oklahoma City, OK 73112
Thomas J. Edelman Common Stock 1,024,031 /1/ 4.3%
777 Main Street, Ste 2500 Preferred Stock 359,623 /1/ 19.7%
Fort Worth, TX 76102
Michael L. Harvey Common Stock 78,039 /2/ Less than 1%
c/o Amerac Energy Corporation
700 Louisiana, Ste 3330
Houston, Texas 77002
William P. Nicoletti Common Stock 278,039 /2/ 1.2%
c/o Amerac Energy Corporation
700 Louisiana, Ste 3330
Houston, Texas 77002
Kenneth R. Peak Common Stock 278,039 /2/ 1.2%
c/o Amerac Energy Corporation
700 Louisiana, Ste 3330
Houston, Texas 77002
Jeffrey B. Robinson Common Stock 1,390,000 /3/ 5.8%
c/o Amerac Energy Corporation
700 Louisiana, Ste 3330
Houston, Texas 77002
Jeffrey L. Stevens Common Stock 400,338 /4/ 1.7%
306 West Seventh St, Ste. 1025
Fort Worth, Texas 76102
All directors and executive Common Stock 3,548,486 14.8%
officers as a group (7 persons) /5/ Preferred Stock 359,623 19.7%
- -----------
</TABLE>
16
<PAGE>
/1 /Mr. Edelman is currently a director and is not standing for re-election.
Includes unvested options to purchase 40,000 shares of Common Stock. Also,
includes 984,031 shares of Common Stock and 359,623 shares of Preferred Stock
held by Snyder Oil Company ("SOCO") of which Mr. Edelman is a director and
President. The 359,623 shares of Preferred Stock held by SOCO were sold on
March 19, 1996.
/2 /Includes unvested options to purchase 40,000 shares of Common Stock.
/3 /Includes unvested options to purchase 540,000 shares of Common Stock.
/4 /Mr. Stevens' ownership includes 197,000 shares of Common Stock which Mr.
Stevens has the right to acquire pursuant to vested stock options and 140,000 of
unvested options. In addition, his ownership includes 63,338 shares of Common
Stock owned by PFI of which Mr. Stevens is President and 74% stockholder.
/5 /The group's (7 persons) ownership includes vested options to purchase
197,000 shares of Common Stock and 940,000 unvested options.
17
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------------------------------------------------------
In 1991, as an investment and a cost reduction measure, the Company
entered into a service contract with Petroleum Financial, Inc. ("PFI") to
perform all of the Company's accounting, marketing, tax, administrative,
financial and treasury services. The contract also encompasses all computer
operations for the Company as well as maintaining stockholder relations, SEC
reporting and banking relations. PFI is owned by the Company (26%) and Mr.
Jeffrey Stevens, Senior Vice President-Chief Financial Officer, Secretary, and
Director of the Company (74%) and provides accounting services to several oil
and gas entities. PFI employs five other former employees of the Company. The
aggregate service fees for the years ended December 31, 1995, 1994, and 1993
were $300,000, $408,000, and $500,000, respectively. For 1996, PFI has agreed to
perform its services for the Company at a monthly fee of $20,000, with possible
upward or downward adjustments dependent on the workload. Mr. Jeffrey Stevens
has agreed to retain his officer position as Senior Vice President and Chief
Financial Officer, but he is not compensated by the Company other than through a
contractual arrangement between the Company and PFI, and stock options.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
- ---------------------------------------------------------------
(a) FINANCIAL STATEMENTS. Financial statements filed as a part of this
report are listed in the Index to Financial Statements appearing
herein following the signature page.
EXHIBITS. The following exhibits are filed as a part of this report
(each compensatory plan required to be filed as an exhibit pursuant to
Item 14c is identified by an asterisk):
3-(1) Certificate of Incorporation of Wolverine Exploration Company
(incorporated by reference as Exhibit 3-( 1 ) to the Company's
Registration Statement No. 33-21824 filed May 13, 1988).
3-(1)(a) Amendment to Certificate of Incorporation of Wolverine Exploration
Company dated September 12, 1988 (incorporated by reference as Exhibit
3-(1)(a) to the Company's Registration Statement No. 33-24429 filed
September 28, 1988).
3-(1)(b) Amendment to Certificate of Incorporation of Wolverine Exploration
Company dated March 17, 1995 (Incorporated by reference to Annex IV to
Exhibit (a)(1) to Schedule 13e-4, dated November 15, 1994)
3-(1)(c) Corporate Bylaws (incorporated by reference to Exhibit 3C to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1987, File No. 0-5003).
4-(1) Indenture dated as of January 15, 1985, between BancTEXAS Dallas,
National Association, Trustee, and the Company regarding the 4-1/2%
Senior Subordinated Notes, Series A, due May 15, 1995 and 4-1/2%
Senior Subordinated Notes, Series B, due May 15, 1995 (incorporated by
reference to Exhibit T3C to the Company's Application for
Qualification of Indentures on Form T-3, relating to the 4-1/2% Senior
Subordinated Notes, Series A and Series B, due May 15, 1995, filed
with the Securities and Exchange Commission on June 20, 1985).
4-(2) First Supplemental Indenture to Indenture of January 15, 1985 dated
March 31, 1987 between the Company and BancTEXAS Dallas, National
Association, Trustee, regarding 4-1/2% Senior Subordinated Notes,
Series A and Series B, due May 15, 1995 (incorporated by reference to
Exhibit 4C 1 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1987, File No. 0-5003).
4-(3) Indenture dated as of January 15, 1985, between BancTEXAS Dallas,
National Association, Trustee, and the Company regarding the 12%
Convertible Senior Subordinated Notes, Series A, due May 15, 1995 and
12% Convertible Senior Subordinated Notes, Series B, due May 15, 1995
(incorporated by reference to Exhibit T3C to the Company's application
for Qualification of Indentures on Form T-3, relating to the 12%
Convertible
18
<PAGE>
Senior Subordinated Notes, Series A and Series B, due May 15, 1995,
filed with the Securities and Exchange Commission on June 20, 1985).
4-(4) First Supplemental. Indenture of January 15, 1985 dated March 31, 1987
between the Company and BancTEXAS Dallas, National Association,
Trustee, regarding 12% Convertible Senior Subordinated Notes, Series A
and Series B, due May 15, 1995 (incorporated by reference to Exhibit
4El to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1987, File No. 0-5003).
4-(5) Certificate of Designations of the Convertible Preferred Stock
(incorporated by reference to Exhibit 4-(17) to Form S-2, Registration
Statement No. 33-33174 dated March 29, 1990).
4-(6) Indenture to be executed between First City, Texas--Dallas and the
Company upon exchange of the Convertible Preferred Stock (incorporated
by reference to Exhibit 4-(18) to Form S-2, Registration Statement No.
33-33174 dated March 29, 1990).
4-(7) Form of Amended and Restated Credit Agreement between the Company and
Christiania Bank, dated as of March 26, 1993 (incorporated by
reference as Exhibit 19-(4) to the Company's Annual Report on form 10-
K for the fiscal year extended December 31, 1992, File No. 0-5003).
4-(8) Certificate of Designations of the $4.00 Senior Preferred Stock
(incorporated by reference to Annex IV to Exhibit (a)(1) to Schedule
13 E-4 dated November 15, 1994).
4-(9) Amended and Restated Credit Agreement with Bank, Texas, National
Association dated May 12, 1995. (Incorporated by reference as Exhibit
19-(3) to the Company's Quarterly Report on Form 10-Q for the
quarterly periods ending June 30, 1995.)
4-(10) Promissory Note to Bank, Texas, National Association for fifteen
million and no/100 dollars ($15,000,000) pursuant to line of credit
(incorporated by reference as Exhibit 19-(4) to the Company's
Quarterly Report on Form 10-Q for the quarterly periods ending
June 30, 1995).
10-(1) Wolverine Exploration Company Stock Option Plan (incorporated by
reference to Exhibit 10M to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1987, File No. 0-5003).
10-(3) Amended and Restated Agreement for financial and accounting services
between the Company and Petroleum Financial, Inc. dated October 13,
1994 for 1995 (incorporated by reference as Exhibit 19-(1) to the
Company's Quarterly Report on Form 10-Q for the quarterly periods
ended September 30, 1994).
10-(4) Wolverine Exploration Company Incentive Bonus Rights Plan, October 14,
1992 (incorporated by reference as Exhibit 19-(1) to the Company's
Annual Report on form 10-K for the fiscal year ended December 31,
1992, File No. 0-5003).
10-(5) Lease Agreement for Continental Plaza Office Building entered into
August 1, 1992 between the Company and 777 Main Operating, Ltd.
(incorporated by reference as Exhibit 19-(2) to the Company's Annual
Report on form 10-K for the fiscal year ended December 31, 1992, File
No. 0-5003).
10-(8) Restated Agreement for financial and accounting services between the
Company and Petroleum Financial, Inc., dated October 26, 1995 for
1996.
10-(9) Acquisition Agreement including amendment number 1 to said agreement
among Amerac Energy Corporation, as Buyer, Powell Resources, Inc., and
The Other Stockholders named herein as Seller and Ridgepointe
Resources, Inc., Fremont Energy Corporation and Fremont Petroleum
Corporation Dated January 5, 1996.
10-(10) Registration Rights Agreement, dated January 16, 1996 among Amerac
Energy Corporation, Powell Resources, Inc., The Longstroth Family
Limited I, Thomas O. Goldsworthy and James B. Tollerton. Related to
19
<PAGE>
acquisition of Fremont Energy Corporation Properties.
10-(11) Assignment, conveyance and Bill of Sale, Northwest Arapahoe
Properties, Cheyenne County, Colorado.
19-(1) Form of Indemnification Agreement between the Company and its officers
and directors (incorporated by reference as Exhibit 19-(1) to the
Company's Annual Report on Form 10-K for the fiscal year ending
December 31, 1995).
_______________________
(b) 8-K'S FILED DURING THE FOURTH QUARTER OF 1995
None.
(d) On January 25, 1996 the Company filed a report on Form 8K related to
the acquisition of Fremont Energy Corporation. The audited statements of
revenues and direct expenses of the oil and gas properties acquired and the Pro
Forma Financial Information of Amerac are included as Exhibits to this filing.
20
<PAGE>
AMERAC ENERGY CORPORATION
INDEX TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994, AND 1993
Page
------------
Report of Independent Accountants F-2
Consolidated Balance Sheets F-3 and F-4
Consolidated Statements of Operations F-5
Consolidated Statements of Cash Flows F-6 and F-7
Consolidated Statements of Changes in
Stockholders' Equity F-8
Notes to Consolidated Financial Statements F-9 thru F-25
FINANCIAL STATEMENTS SCHEDULES
All financial statements schedules are omitted because they are not
applicable or the required information is shown in the consolidated financial
statements or notes thereto.
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Amerac Energy Corporation
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of Amerac
Energy Corporation and its subsidiaries at December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1995, 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 audits. We conducted our audits 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 audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Fort Worth, Texas
March 26, 1996
F-2
<PAGE>
AMERAC ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
Assets
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
------------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 144,000 $ 3,437,000
Receivables
Receivable from Property Sale 1,005,000 -
Trade and other, net of allowance
for bad debts of $41,000 and $41,000,
respectively 111,000 142,000
Oil & Gas Receivable 993,000 356,000
------------ ------------
Total current assets 2,253,000 3,935,000
------------ ------------
PROPERTY AND EQUIPMENT (USING SUCCESSFUL
EFFORTS ACCOUNTING)
Oil and gas properties at cost 20,614,000 16,797,000
Less accumulated depreciation, depletion
and amortization (12,020,000) (11,738,000
------------ ------------
Net property and equipment 8,594,000 5,059,000
------------ ------------
OTHER ASSETS 347,000 168,000
------------ ------------
TOTAL ASSETS $ 11,194,000 $ 9,162,000
============ ============
</TABLE>
(The accompanying notes are an integral part of these financial statements)
F-3
<PAGE>
AMERAC ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
Liabilities and Stockholders' Equity
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
-------------- --------------
<S> <C> <C>
CURRENT LIABILITIES
Trade payables $ 234,000 $ 47,000
Accrued liabilities 372,000 139,000
Notes payable, banks - 50,000
Current portion of subordinated debt - 1,873,000
Obligation under gas contract - 757,000
------------- -------------
Total current liabilities 606,000 2,866,000
------------- -------------
LONG-TERM LIABILITIES
Notes Payable Banks 3,547,000 -
Other long-term liabilities 406,000 542,000
Obligation under gas contract 641,000 -
------------- -------------
Total long-term liabilities 4,594,000 542,000
------------- -------------
STOCKHOLDERS' EQUITY
Preferred stock, $1 par value
10,000,000 shares authorized;
$2.25 Convertible Exchangeable Preferred,
outstanding - 1,822,592 at December 31, 1994 - 1,823,000
$4.00 Senior Preferred,
outstanding 1,786,347 at December 31, 1995 1,786,000 -
Common stock, $.05 par value;
50,000,000 shares authorized; outstanding 20,629,416
shares at December 31, 1995 and 15,883,772
at December 31, 1994 1,031,000 794,000
Additional paid-in capital 142,211,000 142,936,000
Accumulated deficit (139,034,000) (139,799,000)
------------- -------------
Total stockholders' equity 5,994,000 5,754,000
------------- -------------
Commitments and contingencies (Note 6)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 11,194,000 $ 9,162,000
============= =============
</TABLE>
(The accompanying notes are an integral part of these financial statements)
F-4
<PAGE>
AMERAC ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES
Oil, gas and related product sales $ 4,328,000 $ 4,125,000 $ 4,379,000
Gain (loss) on sale of oil and gas properties 850,000 (102,000) 2,322,000
Gain on contractual settlements - 474,000 -
Other operating income - 3,000 176,000
Interest income 74,000 237,000 184,000
----------- ----------- -----------
Total revenues 5,252,000 4,737,000 7,061,000
----------- ----------- -----------
EXPENSES
Lease operations 1,108,000 894,000 1,026,000
Exploration expenses, including dry
hole costs and impairments 246,000 345,000 851,000
Depreciation, depletion and amortization 1,686,000 1,222,000 1,625,000
Administrative 1,767,000 1,775,000 2,116,000
Interest 237,000 229,000 581,000
----------- ----------- -----------
Total expenses 5,044,000 4,465,000 6,199,000
----------- ----------- -----------
Income before tax and extraordinary items 208,000 272,000 862,000
Provision for federal income tax - - -
----------- ----------- -----------
Income before extraordinary items 208,000 272,000 862,000
Extraordinary item - gain on the early
extinguishment of debt - - 3,731,000
----------- ----------- -----------
NET INCOME $ 208,000 $ 272,000 $ 4,593,000
=========== =========== ===========
NET INCOME (LOSS) APPLICABLE TO
COMMON STOCKHOLDERS $ (599,000) $(3,828,000) $ 493,000
=========== =========== ===========
NET INCOME (LOSS) PER COMMON SHARE
Loss before extraordinary item $ (0.03) $ (0.24) $ (0.20)
Extraordinary item - - 0.23
----------- ----------- -----------
Net income (loss) per common share $ (0.03) $ (0.24) $ $0.03
=========== =========== ===========
Average common stock outstanding 19,594,000 15,884,000 15,877,000
=========== =========== ===========
</TABLE>
(The accompanying notes are an integral part of these financial statements)
F-5
<PAGE>
AMERAC ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
CASH FLOW FROM OPERATING
ACTIVITIES:
Net income $ 208,000 $ 272,000 $ 4,593,000
Extraordinary item - - (3,731,000)
---------- ---------- -----------
Net income before extraordinary item 208,000 272,000 862,000
Adjustments needed to reconcile
to net cash flow provided by(used for)
operating activities:
Depreciation, depletion and amortization 1,686,000 1,222,000 1,625,000
Amortization of discount 7,000 24,000 34,000
Exploration expenses,
including dry holes and impairments - 345,000 851,000
(Gain) loss on sale of properties (850,000) 102,000 (2,322,000)
Recognition of deferred revenue (116,000) (289,000) -
Gain on contractual settlements - (474,000) -
Other 30,000 - (173,000)
Changes in current items
relating to operations:
Trade receivables 31,000 81,000 15,000
Oil and Gas receivables (637,000) 105,000 16,000
Trade payables 187,000 (117,000) 2,000
Accrued and other
long-term liabilities 97,000 (212,000) (126,000)
---------- ---------- -----------
NET CASH FLOW PROVIDED BY OPERATIONS 643,000 1,059,000 784,000
---------- ---------- -----------
CASH FLOW FROM INVESTING
ACTIVITIES:
Proceeds from sale of assets 140,000 102,000 1,994,000
Oil and gas expenditures and acquisitions (5,477,000) (2,379,000) (526,000)
Net purchases of other assets (94,000) (14,000) (19,000)
---------- ---------- -----------
NET CASH PROVIDED BY (USED FOR)
INVESTING ACTIVITIES (5,431,000) (2,291,000) 1,449,000
---------- ---------- -----------
</TABLE>
(The accompanying notes are an integral part of these financial statements)
F-6
<PAGE>
AMERAC ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
CASH FLOW FROM FINANCING ACTIVITIES:
Subordinated debt repayment $(1,879,000) $ (574,000) $ (657,000)
Bank borrowings 3,547,000 - -
Bank repayments (50,000) - (950,000)
Facility financing repayments - - (9,000)
Restricted cash deposits - - 2,073,000
Other (123,000) (102,000) (10,000)
----------- ----------- ----------
NET CASH PROVIDED BY (USED FOR)
FINANCING ACTIVITIES 1,495,000 (676,000) 447,000
----------- ----------- ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (3,293,000) (1,908,000) 2,680,000
Cash and cash equivalents at beginning of period 3,437,000 5,345,000 2,665,000
----------- ----------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 144,000 $ 3,437,000 $5,345,000
=========== =========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for Interest $ 276,000 $ 315,000 $ 490,000
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Exchange of properties for facility financing
debt and accrued interest $ - $ - $8,111,000
Exchanged $2.25 Convertible Exchangeable Preferred
for Senior Preferred Stock (See Note 4) $ - $ - $ -
Paid dividends in kind
on the Senior Preferred Stock (See Note 4) $ 807,000 $ - $ -
Paid certain compensation in Common Stock (See Note 4) $ 30,000 $ - $ -
</TABLE>
(The accompanying notes are an integral part of these financial statements)
F-7
<PAGE>
AMERAC ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
JANUARY 1, 1993 TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
$2.25 Convertible
$4.00 Senior Exchangeable
Preferred Stock Preferred Shares
---------------------- -----------------------
Shares Amount Shares Amount
---------------------- -----------------------
<S> <C> <C> <C> <C>
BALANCE- January 1, 1993 - - 1,830,000 $ 1,830,000
--------- ----------- ---------- -----------
Conversion of preferred to
common - - (7,408) (7,000)
Other - - - -
Net income - - - -
--------- ----------- ---------- -----------
BALANCE - December 31, 1993 - - 1,822,592 1,823,000
--------- ----------- ---------- -----------
Exercise of warrants - - - -
Net income - - - -
--------- ----------- ---------- -----------
BALANCE - December 31, 1994 - - 1,822,592 1,823,000
--------- ----------- ---------- -----------
Preferred Exchange 1,634,305 $1,634,000 (1,822,592) (1,823,000)
Stock Issued for
Director's fees - - - -
Option Exercised - - - -
Preferred Stock Dividend 152,042 152,000 - -
Net income - - - -
--------- ----------- ---------- -----------
BALANCE - December 31, 1995 1,786,347 $1,786,000 0 $ 0
========= =========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
Common Shares
($.05 par value) Additional
------------------------ Paid-In Accumulated
Shares Amount Capital Deficit Total
---------- ---------- ----------- ------------- ----------
BALANCE- January 1, 1993 15,871,120 $ 793,000 $142,929,000 $(144,664,000) $ 888,000
---------- ---------- ------------ ------------- ----------
<S> <C> <C> <C> <C> <C>
Conversion of preferred to
common 15,038 1,000 7,000 - 1,000
Other (2,436) - - - -
Net income - - - 4,593,000 4,593,000
---------- ---------- ------------ ------------- ----------
BALANCE - December 31, 1993 15,883,722 794,000 142,936,000 (140,071,000) 5,482,000
---------- ---------- ------------ ------------- ----------
Exercise of warrants 50 - - - -
Net income - - - 272,000 272,000
---------- ---------- ------------ ------------- ----------
BALANCE - December 31, 1994 15,883,772 794,000 142,936,000 (139,799,000) 5,754,000
---------- ---------- ------------ ------------- ----------
Preferred Exchange 4,549,726 228,000 (1,403,000) 1,364,000 0
Stock Issued for
Director's fees 155,918 7,000 23,000 - 30,000
Option Exercised 40,000 2,000 - - 2,000
Preferred Stock Dividend - - 655,000 (807,000) 0
Net income - - - 208,000 208,000
---------- ---------- ------------ ------------- ----------
BALANCE - December 31, 1995 20,629,416 $1,031,000 $142,211,000 $(139,034,000) $5,994,000
========== ========== ============ ============= ==========
</TABLE>
(The accompanying notes are an integral part of these financial statements.)
F-8
<PAGE>
AMERAC ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
Amerac Energy Corporation, formerly Wolverine Exploration Company ("Amerac"
or the "Company") was formed in 1969. The Company reincorporated in the state of
Delaware as Wolverine Exploration Company in 1987 and changed its name to Amerac
in March 1995. Since 1969, the Company has engaged in exploration, development
and operating of oil and gas properties in the United States and Canada. In
July, 1993, the Company formed a wholly owned subsidiary, Lance Exploration
Company ("Lance Exploration" or "Lance"), for the purpose of prospect
generation. This subsidiary was sold in July, 1994 and the Company changed its
primary focus from oil and gas exploration to acquisitions and development of
proved oil and gas properties.
The consolidated financial statements include the accounts of Amerac and
its wholly-owned subsidiaries. All significant intercompany transactions and
accounts have been eliminated.
OIL AND GAS EXPLORATION AND DEVELOPMENT COSTS
The Company follows the successful efforts method of accounting for its oil
and gas operations as prescribed in Statement of Financial Accounting Standards
("SFAS") No. 19 issued by the Financial Accounting Standards Board.
Under the successful efforts method, costs of productive wells, development
dry holes and productive leases are capitalized and amortized on a unit-of-
production basis over the life of remaining proved reserves. Cost centers for
amortization purposes are determined on a field-by-field basis. Capitalized
costs of proved properties are subject to a "ceiling test" which limits, on a
country-by-country basis, capitalized costs to estimated undiscounted future net
revenues from these properties assuming current prices and costs.
Oil and gas leasehold costs are capitalized when incurred. The acquisition
costs of all unproved properties that are not individually significant are
aggregated, and the portion of such costs estimated to be non-productive, based
on historical experience, is amortized on an average holding period basis. Any
individually significant unproved properties are assessed periodically, and any
impairments in value are charged to expense. Costs of such properties
surrendered are charged against the valuation allowance.
Exploratory expenses, including geological and geophysical expenses and
delay rentals for oil and gas leases, are charged to expense as incurred.
Exploratory drilling costs, including stratigraphic test wells, are initially
capitalized, but charged to expense if and when the well is determined to be
unsuccessful.
Future obligations for site restoration costs, including dismantling and
abandoning properties, are accrued using the unit of production method and
expensed as depletion.
Sales of oil and gas properties result in adjustments to the cost and
accumulated depreciation, depletion and amortization as provided under the
successful efforts method of accounting. Gain or loss is recognized if the
entire amortization base is sold and represents the difference between the
proceeds and book basis of the properties sold. See Note 2 regarding significant
sales of oil and gas properties.
F-9
<PAGE>
AMERAC ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
FOURTH QUARTER ADJUSTMENTS
As a result of revised reserve estimates and other factors, the Company
revised its property amortization and impairment estimates and recorded an
adjustment in the fourth quarter of 1994 increasing income by approximately
$300,000. The Company also recorded a gain of $450,000 in the fourth quarter of
1994 in connection with the gas contracts (see Note 6).
STATEMENT OF CASH FLOWS
For purposes of the Statement of Cash Flows, cash equivalents include time
deposits, certificates of deposit and all liquid debt instruments with original
maturities of three months or less.
REVENUE RECOGNITION
The Company follows the "sales method" of accounting for its oil and gas
revenue whereby the Company recognizes sales revenue on all oil or gas sold to
its purchasers, regardless of whether the sales are proportionate to the
Company's ownership in the property. A receivable or liability is recognized
only to the extent that the Company has an imbalance on a specific property
greater than the expected remaining life of the reservoir. As of December 31,
1995, the Company's aggregate oil and gas imbalances were not material to the
Company's financial statements.
NET LOSS PER COMMON SHARE
Net income or loss per common share is computed by dividing the net income
or loss applicable to common stockholders by the weighted average number of
shares of common stock outstanding. In computing income or loss per common share
for 1994 and 1993, the Convertible Preferred dividends, either declared or in
arrearage for the period, decreases the income or increases the loss applicable
to common stockholders. For computation of the 1995 income (loss) per common
share, the Senior Preferred dividends also decreases the income and increase the
loss applicable to common stockholders. The stock options and convertible debt
are anti-dilutive and were not included in the calculation of income or losses
per common share.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF CREDIT
RISK
The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash equivalents, short-term investments and
trade, and oil and gas receivables.
The Company's cash equivalents and short-term investments represent high-
quality securities placed with various investment grade institutions. This
investment practice limits the Company's exposure to concentrations of credit
risk.
Financial instruments which potentially expose the Company to
concentrations of credit risk, as defined by SFAS No. 105, consist primarily of
trade and oil and gas receivables. The Company's trade and oil and gas
receivables are dispersed among various domestic customers and purchasers;
therefore, concentrations of credit risk are limited. If customers are
considered a credit risk, letters of credit are the primary security obtained to
support lines of credit.
F-10
<PAGE>
AMERAC ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
ACCOUNTING FOR INCOME TAXES
The Company recognizes deferred tax assets and liabilities for the expected
future tax consequences of tax credits and other carryforwards, as well as
temporary differences between the book and tax basis of assets and liabilities.
A valuation allowance for deferred tax asset is recorded when it is more likely
than not that the benefit from the deferred tax asset will not be realized.
The Company files a consolidated tax return and the consolidated group
follows a policy of allocating consolidated income tax charges and credits, and
providing charges in lieu of taxes, based on each member's contribution to
consolidated income or loss.
PERVASIVENESS OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities, and
related revenues and expenses, and disclosure of gain and loss contingencies at
the date of the financial statements. Actual results could differ from estimated
amounts.
ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments",
requires the disclosure of the estimated fair value of financial instruments.
The estimated fair value amounts have been determined by the Company using
available market information and appropriate valuation methodologies. At
December 31, 1995, the estimated fair values of the Company's financial
instruments, primarily receivables and debt, approximate their carrying value
because either the receivables are short term in nature or debt instruments have
variable interest rates.
NEW ACCOUNTING STANDARDS
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121") ,
which is effective for fiscal years beginning after December 15, 1995. Effective
January 1, 1996, the Company will adopt SFAS 121 which requires that long-lived
assets (i.e., property, plant and equipment) held and used by an entity be
reviewed for impairment whenever events or changes in circumstances indicate
that the net book value of the asset may not be recoverable. An impairment loss
will be recognized if the sum of the expected future cash flows (undiscounted
and before interest) from the use of the asset is less than the net book value
of the asset. The amount of the impairment loss will be measured as the
difference between the net book value of the assets and the estimated fair value
of the related assets. SFAS 121 requires that assets be grouped at the lowest
level for which there are identifiable cash flows that are largely independent
of the cash flows of other groups of assets. The Company does not expect any
material impact upon adoption of SFAS 121 in the first quarter of 1996.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), which is effective for fiscal years beginning after
December 15, 1995. Effective January 1, 1996, the Company will adopt SFAS 123
which establishes financial accounting and reporting standards for stock based
employee compensation plans. The pronouncement defines a fair-value based method
of accounting for an employee stock option or similar equity instrument.
However, it also allows an entity to continue to measure compensation cost for
those plans using the intrinsic-value based method of accounting as prescribed
by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"). Entities electing to remain with the accounting as
prescribed by APB 25 must make proforma disclosures of net income and earnings
per share as if the fair-value based method of accounting defined in SFAS
F-11
<PAGE>
123 had been applied. The Company will continue to account for stock-based
employee compensation plans under the intrinsic method pursuant to APB 25 and
will make the disclosures in its footnotes as required by SFAS 123.
2. PROPERTY ACQUISITIONS AND DISPOSITIONS
PROPERTY ACQUISITIONS
In October 1995, the Company acquired a portion of the Truby field located
in Jones County, Texas for $650,000. This acquisition included a 320-acre lease
with two producing wells and a 200-acre undeveloped lease. The additional
acreage will provide the Company with both proved and probable drilling
locations.
In May 1995, the Company acquired the Myrtle B field in Loving County,
Texas for $725,000. This acquisition included four producing wells and four
proved undeveloped locations. The Company has a 100% working interest and a 75%
net revenue interest in this property.
In April 1995, the Company announced the acquisition of the Cosden field in
Bee County, Texas for $2.9 million. This field produces from three wells. The
Company has a 68% net working interest and a 52% net revenue interest in this
property.
The unaudited pro forma data is presented in Note 9.
SALE OF OIL AND GAS PROPERTIES
In December 1995, the Company agreed to sell its interest in the Northwest
Arapahoe field, in Colorado, for $1.0 million to the operator. This was a
waterflood project that had no future development potential. This property was
sold for substantially more than its book value resulting in a $.07 million gain
on sale.
In February 1993, the Company sold certain producing properties located in
the Southeast Morrow Trend for net proceeds of approximately $1.8 million. The
Company recognized a book gain on this sale during 1993 of approximately $1.5
million.
On July 14, 1993, the Company and UPRC closed a transaction exchanging
certain obligations for three offshore leases, High Island 178, High Island A-
71/72 and Galveston 333, and the Company's interest in HITECO (see Note 3 -
Offshore Facility Financing).
3. NOTES PAYABLE, LONG-TERM INDEBTEDNESS, AND PLEDGED ASSETS
BANKS
On May 12, 1995, the Company entered into a $15 million revolving line of
credit agreement with BankOne, Texas National Association ("Bank Credit
Agreement"). The Bank Credit Agreement is a two-year facility with interest due
monthly and principal due at May 31, 1997. The Bank Credit Agreement is secured
by all of the Company's oil and gas properties, and contains various restrictive
covenants which may, if not met, cause the Company to be in default or reduce
its access to additional borrowings. The borrowing base at December 31, 1995 was
$4,000,000. At December 31, 1995, $3,547,000 was outstanding under the Bank
Credit Agreement, accruing interest at the BankOne Texas Base Rate plus three
quarter percent (9.25% at December 31, 1995).
In conjunction with a January 1996 acquisition (see Note 9) the BankOne
Credit Agreement was amended on January 16, 1996, to among other things,
increase the borrowing base to $10.6 million and a mandatory reduction of
$185,000 each month, commencing February 1, 1996. At March 26, 1996, the Company
had $9.7 million outstanding and has borrowing capacity of $300,000 under the
Bank Credit Agreement.
At December 31, 1995, the Company had a $125,000 letter of credit issued on
its behalf collateralized by a $125,000 certificate of deposit, which is
reflected in other assets.
F-12
<PAGE>
PAGE>
AMERAC ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
OTHER INDEBTEDNESS
In July 1993, the Company and Union Pacific Resources Company ("UPRC")
settled all remaining obligations, aggregating approximately $8 million, which
were related to their partnership interest in the High Island Texas Equipment
Company Ltd. ("HITECO") and to the operating agreements covering the High Island
178 and A71/72 offshore leases. In the transaction, the Company assigned all its
interests in HITECO and in certain Gulf of Mexico oil and gas properties (High
Island 178, High Island A71/72 and Galveston 333), effective May 1, 1993, and
made certain other minor modifications to the operating agreements with regard
to future development at South Timbalier 198. The Company recognized a book gain
in 1993 on this transaction of approximately $4.4 million. Approximately
$700,000 of this gain was recognized as a gain on sale of properties and
approximately $3.7 million as extraordinary gain on the early extinguishment of
debt.
During May 1995, the Company extinguished its subordinated indebtness of
$1,879,000.
4. STOCKHOLDERS' EQUITY
COMMON STOCK
Each share of Common Stock entitles the holder thereof to one vote on all
matters on which holders are permitted to vote. No stockholder has any right or
other similar right to purchase or subscribe to any additional securities issued
by the Company, and no stockholder has any right to convert common stock into
other securities. The holders of shares of common stock are entitled to
dividends when and if declared by the Board of Directors from funds legally
available therefor and, upon liquidation, to a pro rata share in any
distribution to stockholders, subject to prior rights of the holders of the
preferred stock. The Company is restricted under certain conditions from
declaring or paying any cash dividend on the Common Stock by its loan agreement
and the certificate of designations defining the provisions of the Senior
Preferred, as defined below.
In July 1995, the Company filed a registration statement with the
Securities and Exchange Commission for the purpose of registering the 3,651,195
shares of Common Stock held by Investment Limited Partnership ("ILP") who in
turn sold the shares to certain individuals. Three of these individuals are
directors of the Company. Messrs. Jeffrey Robinson, President and Chief
Executive Officer, Kenneth R. Peak and William P. Nicoletti are Directors of the
Company and acquired from ILP 800,000, 200,000 and 200,000 shares, respectively.
PREFERRED STOCK
In March 1995, the Company exchanged, with holders who accepted the
exchange, one share of its Senior Preferred, with a stated value and liquidation
value of $4.00 per share, par value $1.00 per share and an initial dividend rate
of $.36 per share, and 2.5 shares of Common Stock (the "Exchange Offer") for
each outstanding share of $2.25 Convertible Exchangeable Preferred Stock ("Old
Preferred"), which carried a stated value of $25.00 per share and a dividend
rate of $2.25 per share. At the time of the Exchange Offer, the Company had
dividends in arrears on the Old Preferred of approximately $14.4 million and a
liquidation preference of approximately $45.6 million. The Exchange Offer was
approved by the holders of the majority of the Common Stock and by approximately
90% of the holders of Old Preferred. As a result, 1,634,305 shares of Old
Preferred were exchanged for 1,634,305 shares of Senior Preferred and 4,079,049
shares of Common Stock. Holders of Old Preferred that did not exchange received
2.5 shares of Common Stock for each share of Old Preferred not exchanged,
resulting in the issuance of 470,677 shares of Common Stock. This Exchange Offer
eliminated all Old Preferred and related dividend arrearages.
This Exchange Offer did not have any material impact on the pro forma
supplemental earnings per share.
F-13
<PAGE>
AMERAC ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
At the date of the Exchange Offer, the Company discounted the Senior
Preferred by an amount which would yield its perpetual rate of 15% during the
initial years while the stated dividend rate is 9.0%. Accordingly, the Company
credited retained earnings and debited additional paid in capital for
approximately $1.4 million representing the discount amount. These amounts are
being amortized over a five year period and do not effect current period income
or loss, except for net income (loss) applicable to common stockholders.
The Senior Preferred provides, among other things, that the Company has the
option to pay the quarterly dividends, which commenced January 1, 1995, for the
first two years in either cash or additional shares of Senior Preferred. The
Company currently plans to pay these dividends in shares of Senior Preferred.
The Company issued 152,042 shares of Senior Preferred for 1995 dividends.
Beginning January 1, 1997, the Company has, under certain conditions, the option
to pay the dividends in cash or Common Stock. The annual dividend rate
increases from $.36 per share to $.60 at January 1, 2000. The Company has the
option of redeeming the Senior Preferred at face value at anytime. If the
Company fails to pay a quarterly dividend on the Senior Preferred, then the
holders of the Senior Preferred have the right to elect 80 % of the Board of
Directors. See Note 9.
STOCK OPTION PLANS
The Company may grant key employees, directors and independent contractors
options to purchase Common Stock under the Company stock option plan (the
"Plan"). The Plan allows the granting of either non-qualified stock options or
incentive stock options. The Plan also provides that options are not exercisable
in the first year and thereafter become fully exercisable.
As of December 31, 1995, options granted at market value at date of grant
pursuant to the Plan were incentive stock options covering 1,222,000 shares held
by four directors, two officers/directors, one officer and two other
individuals. These options were outstanding at exercise prices ranging from $.06
to $7.875 per share. Of that total, 247,000 options are currently exercisable at
year end. The Company pays a portion of its non-employee directors fees in
Common Stock.
Stock option transactions, in the period from December 1993 to December 31,
1995 are summarized below:
<TABLE>
<CAPTION>
Number of Option Price
Shares Per Share
-------------------------- --------------
<S> <C> <C>
December 31, 1992 1,225,960
Issued 100,000 $.06
Exercised 0
Expired (252,980)
---------
December 31, 1993 1,072,980
---------
Issued 40,000 $.06
Exercised 0
Expired (648,980)
---------
December 31, 1994 464,000
---------
Issued 940,000 $.156 to $ .172
Exercised (40,000) $.06
Expired (142,000)
---------
December 31, 1995 1,222,000
=========
</TABLE>
F-14
<PAGE>
AMERAC ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
5. UNITED STATES INCOME TAXES
The provision for income taxes differs from the amount of income
taxes, computed by applying the U.S. statutory federal tax rate to pretax income
before extraordinary items, as a result of the following differences:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- ---------
<S> <C> <C> <C>
Provision based on statutory rate $ 71,000 $ 95,000 $ 302,000
Effect of statutory rate change on
deferred tax balances - - (724,000)
Limitation on recognition of deferred
benefits - - 422,000
Change in valuation allowance related
to net operating losses (71,000) (95,000) -
-------- -------- ---------
Provision for income taxes $ - $ - $ -
======== ======== =========
</TABLE>
Deferred tax assets (liabilities) are comprised of the following at
December 31:
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
Net operating loss carryforwards $ 70,200,000 $ 70,000,000
Oil and gas properties (259,000) (488,000)
Small producers' depletion carryforward 4,324,000 4,057,000
ITC carryforward 2,792,000 2,988,000
Asset valuation allowance (77,057,000) (76,557,000)
------------ ------------
Net deferred tax asset $ - $ -
============ ============
</TABLE>
Based on management's analysis of future taxable income and current
potential future annual limitations of the utilizations of net operating loss
carryforwards ("NOL"), the Company does not believe it is likely that it will
realize the benefits of its net deferred tax assets; as a result, a valuation
allowance has been provided for the entire balance.
Under federal tax law, the amount and availability of tax benefit
carryforwards are subject to a variety of interpretations and restrictive tests.
The utilization of such carryforwards could be limited or effectively lost upon
certain changes of ownership. After an "ownership change," the pre-change tax
benefit loss carryforwards available to offset taxable income are limited to a
prescribed annual amount. In general, an ownership change occurs if a loss
corporation has more than a 50% ownership change (based on the value of stock)
during a three-year period. The annual limitation is calculated by applying a
prescribed rate times the value of the loss corporation's stock immediately
before the ownership change.
F-15
<PAGE>
AMERAC ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
The Company believes an ownership change occurred at the time of the
sale of 2.3 million shares of common stock in December, 1989, resulting in an
annual limitation of the Company's utilization of NOLs of approximately $11.0
million. The amount of NOL available in any future year is the sum of that
year's annual limitation, any previously unused annual limitation and any post
ownership change losses. As a result, the NOL available for use in 1996 is
approximately $115 million ($105 million for alternative minimum tax purposes).
Management believes that an ownership change may occur in 1996 resulting in
another annual limitation of the utilization of the NOL upon the completion the
offer to convert Senior Preferred for Common Stock during 1996 (See Note 9) when
combined with other recent equity transactions.
The Company at December 31, 1995, had a regular NOL of approximately
$201 million and approximately $173 million for alternative minimum tax
purposes. The net operating losses are scheduled to expire as follows:
<TABLE>
<CAPTION>
ALTERNATIVE
INCOME MINIMUM
YEAR TAX TAX
- ----------- ----------- -----------
<S> <C> <C>
1998 $16,161,000 $15,861,000
1999 47,624,000 47,624,000
2000 33,818,000 33,818,000
2001 6,403,000 6,403,000
2002 16,452,000 11,528,000
2004 33,063,000 19,106,000
2005 11,379,000 7,144,000
2006 6,783,000 4,816,000
2007 19,600,000 18,084,000
2008 4,784,000 4,091,000
2009 4,545,000 4,269,000
</TABLE>
Additionally, the Company has approximately $2,792,000 of unused investment
tax credits expiring through the year 2000, with the majority expiring in the
years 1996 through 1997.
The Company also has small producers' depletion carry forwards of
approximately $12,355,000 which may be carried forward indefinitely to offset
the Company's future taxable income.
F-16
<PAGE>
AMERAC ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
6. COMMITMENTS AND CONTINGENCIES
In February 1995, Geodyne Resources, Inc. ("Geodyne") filed an Original
Third-Party Petition naming the Company as third-party defendant. The claim
arose out of the settlement of a 1986 accident by UPRC, operator of a property
in Summit County, Utah. UPRC subsequently sued Geodyne for a proportionate
share of the lawsuit settlement involving the 1986 well accident. Geodyne
purchased the property from the Company in 1988 and is claiming that the Company
is liable under the indemnity provisions of the 1988 Purchase and Sale Agreement
between the Company and Geodyne. The amount of the claim against the Company is
approximately $176,000. The Company has filed a general denial and is reviewing
this matter with its insurance carriers and counsel. The Company has been
indemnified for any shortfall in the insurer's payment on the claim.
In 1988, the Company settled a gas contract dispute with El Paso Natural
Gas Company ("El Paso") relating to the Shurley Ranch properties in Sutton
County, Texas. These properties had been the subject of litigation until late
1993, at which time El Paso began purchasing gas on these properties. Pursuant
to the terms of the gas contract settlement, El Paso is applying 65% of the
current production to a prepayment received by the Company in 1988. The
Company's 1995 revenue of $116,000 from this portion of the production has been
applied against this prepayment at an imputed price of $3.25 per Mcf. The gas
contract expires in February 1997, and at that time, as provided in the
contract, the Company is obligated to pay El Paso the lesser of the remaining
prepayment balance or $360,000. During the fourth quarter of 1994, the Company
concluded that it was relatively certain that the Shurley Ranch properties could
not produce sufficient gas to recover El Paso's prepayment and the Company
released a portion of the delivered balance to income of $450,000 representing
the excess of the remaining prepayment balance over the sum of the expected
production from January 1995 through February 1997 and the expected $360,000
minimum payment. As of December 31, 1995, the remaining prepayment balance was
$641,000 after considering the recognition of the gain discussed above.
The Company is subject to various possible contingencies which arise
primarily from interpretation of federal and state laws and regulations
affecting the oil and gas industry. Such contingencies include differing
interpretations as to the prices at which oil and gas sales may be made, the
prices at which royalty owners may be paid for production from their leases and
other matters. Although management believes it has complied with the various
laws and regulations, administrative rulings and interpretations thereof,
adjustment could be required as new interpretations and regulations are issued.
In addition, production rates, marketing and environmental matters are subject
to regulation by various federal and state agencies.
The Company is not currently a party to any litigation which would have a
material impact on its financial statements. However, due to the nature of its
business, certain legal or administrative proceedings may arise in the ordinary
course of its business.
The Company is committed to various lease contracts for office space
and miscellaneous office equipment expiring at various intervals through 1997,
with total minimum payments aggregating $114,000 at December 31, 1995. The
minimum annual rental commitments are $72,000 for 1996 and $42,000 for 1997. A
portion of this obligation is offset by a sublease with aggregate future
receipts of $76,000 over the term of the sublease.
F-17
<PAGE>
AMERAC ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
7. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
In 1991, as an investment and a cost reduction measure, the Company entered
into a service contract with Petroleum Financial, Inc. ("PFI") to perform all of
the Company's accounting, marketing, tax, administrative, financial and treasury
services. The contract also encompasses all computer operations for the Company
as well as maintaining stockholder relations, SEC reporting and banking
relations. PFI is owned by the Company (26%) and Mr. Jeffrey Stevens, Senior
Vice President-Chief Financial Officer and Director of the Company (74%) and
provides accounting services to several oil and gas entities. The aggregate
service fees for the years ended December 31, 1995, 1994, and 1993 were
$300,000, $408,000, and $500,000, respectively. For 1996, PFI has agreed to
perform its services for the Company at a monthly fee of $20,000, with possible
upward or downward adjustments dependent on the workload and achievement of
certain goals. Mr. Jeffrey Stevens has agreed to retain his officer position as
Senior Vice President and Chief Financial Officer, but he is not compensated by
the Company other than through a contractual arrangement between the Company and
PFI, stock options and Director's fees.
8. ADDITIONAL OPERATIONS AND BALANCE SHEET INFORMATION
SIGNIFICANT OIL AND GAS PURCHASERS
Oil sales are made on a day-to-day basis or under a short-term contract at
approximately the current area posted price. The loss of any oil purchaser would
not be expected to have a material adverse effect upon operations. Following is
a listing of significant oil purchasers during the three-year period ended
December 31, 1995, and the approximate percentage of oil revenues derived from
each:
<TABLE>
<CAPTION>
OIL REVENUES:
PERCENT
----------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
PURCHASERS
- ----------
Essex Refining Company - - 33
Marathon 34 55 32
TEMCO Liquids Company 11 16 19
Union Pacific Fuels, Inc. 15 10 9
Sun Refining and Marketing Company 31 13 -
</TABLE>
A majority of the Company's natural gas is sold pursuant to short-term
contracts at prices which fluctuate at a premium to the spot market. Under the
terms of the contracts, the gas purchasers may elect to purchase less gas than
the wells are able to produce, and the Company may be unable to sell the excess
production to other purchasers. Following is a listing of significant natural
gas purchasers during the three-year period ended December 31, 1995, and the
approximate percentage of natural gas revenues derived from each:
<TABLE>
<CAPTION>
NATURAL GAS REVENUES:
PERCENT
-------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
PURCHASERS
----------
TEMCO Liquids Company 39 77 83
MG Natural Gas Corporation 18 - -
</TABLE>
F-18
<PAGE>
AMERAC ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
There are no other customers of the Company which individually
accounted for more than 10% of the Company's revenues during the three years
ended December 31, 1995.
ACCRUED LIABILITIES
Accrued liabilities as of December 31, 1995 and 1994 consists of the
following:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Operating expenses $ 97,000 $ 55,000
Interest - 39,000
Accrued salaries and other 275,000 45,000
-------- --------
Total $372,000 $139,000
======== ========
</TABLE>
9. SUBSEQUENT EVENTS
In January 1996, the Company acquired Fremont Energy Corporation
("Fremont"), an Oklahoma-based oil and gas company for $7 million paid in cash
and 3.3 million shares of the Company's Common Stock. Fremont has 131 wells
located predominately in central Oklahoma and Kansas and are concentrated in
three major fields. Fremont's unaudited estimated net proved reserves at
December 31, 1995 totaled approximately 13.4 billion cubic feet equivalent
("Bcfe"). With this acquisition and the acquisitions in 1995, the Company
increased its unaudited estimated undiscounted future net cash flow by 235%
compared to 1994.
The 1994 and 1995 acquisitions discussed in Note 2 and the Fremont
acquisition were accounted for under purchase accounting and the results of
operations were consolidated beginning with the closing date. Unaudited pro
forma results of operations are presented below as if the acquisitions had
occurred January 1, 1994:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1994
---- ----
(In thousands except per share amounts)
<S> <C> <C>
Revenues $7,832 $7,655
Net Income 511 575
Net Income (loss) per common share (.01) (.18)
</TABLE>
F-19
<PAGE>
AMERAC ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
UNAUDITED PROFORMA OIL AND GAS RESERVES AND FUTURE CASH FLOW INFORMATION
The tables below present on a pro-forma basis estimated reserves and future
cash flows of Amerac's properties combined with Fremont as December 31, 1995.
<TABLE>
<CAPTION>
1995
------------------
OIL GAS
(MBBL) (MMCF)
-------- --------
<S> <C> <C>
PROVED RESERVES
Developed 999.2 16,223
Undeveloped 375.2 1,772
------- -------
Total 1,374.4 17,995
======= ======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------
(In thousands except per share amounts)
<S> <C>
Future cash inflows (1) $60,150
Future production an development
costs 23,294
Future income tax expenses -
-------
Future net cash flows 36,856
10% annual discount for estimated
timing of cash flows (13,763)
-------
Standardized measure of discounted
future net cash flows $23,093
=======
</TABLE>
(1) Calculated using future cash inflows which were estimated by applying year-
end prices, adjusted for fixed and determinable escalations, to the estimated
future production of year-end proved reserves. Future cash inflows were reduced
by estimated future production and development costs based on year-end costs to
determine future inflows. Future net cash inflows were discounted using a 10%
annual discount rate.
OTHER MATTERS
- -------------
At the 1996 annual meeting of stockholders, the Company will be submitting
to its stockholders a proposal to amend its Certificate of Designations of the
Senior Preferred, to provide for the conversion of each outstanding share of the
Senior Preferred into nine (9) shares of Common Stock.
F-20
<PAGE>
AMERAC ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
10. SUPPLEMENTAL OIL AND GAS DISCLOSURES (UNAUDITED)
The following table summarizes costs incurred in oil and gas property
acquisition, exploration and development activities. Property acquisition costs
are those costs incurred to purchase, lease, or otherwise acquire property,
including both undeveloped leasehold and the purchase of reserves in place.
Exploration costs include costs of identifying areas that may warrant
examination and in examining specific areas that are considered to have
prospects containing oil and gas reserves, including costs of drilling
exploratory wells, geological and geophysical costs and carrying costs of
undeveloped properties. Development costs are incurred to obtain access to
proved reserves, including the cost of drilling development wells and to provide
facilities for extracting, treating, gathering, and storing the oil and gas.
Costs incurred in oil and gas activities for the three years ended December
31, 1995 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ -----
<S> <C> <C> <C>
(amounts in thousands)
Property acquisition $4,605 $1,933 $ 83
Exploration 246 449 478
Development 872 - -
------ ------ -----
$5,723 $2,382 $ 561
====== ====== =====
</TABLE>
F-21
<PAGE>
AMERAC ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
Selected data for the three years ended December 31, 1995 follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net oil and gas revenues
(amounts in thousands) $3,220 $3,231 $3,353
------ ------ ------
Amortization per equivalent Mcf $ .80 $ .60 $ .75
------ ------ ------
Average sales price per barrel of oil $16.53 $15.25 $14.52
------ ------ ------
Average sales price per Mcf of gas $ 1.62 $ 2.01 $ 1.88
------ ------ ------
Production cost per equivalent Mcf $ .53 $ .47 $ .48
------ ------ ------
</TABLE>
Net proved oil and gas reserves as of December 31, 1995 and 1994, have
been prepared by the Company and audited by Ryder Scott Company and the net oil
and gas reserves as of December 31, 1993 were prepared by Netherland, Sewell
and Associates. The reserves were prepared in accordance with guidelines
established by the Securities and Exchange Commission and accordingly, were
based on existing economic and operating conditions. Oil and gas prices in
effect at December 31 of each year were used except in those instances where the
sale is covered by contract, in which case the applicable contract prices
including fixed and determinable escalations were used for the duration of the
contract, and thereafter the last contract price was used. Operating costs,
production and ad valorem taxes and future development costs were based on
current costs with no escalation.
There are numerous uncertainties inherent in estimating quantities of
proved reserves and in projecting the future rates of production and timing of
development expenditures. The following reserve data represents estimates only
and should not be construed as being exact. Moreover, the present values should
not be construed as the current market value of the Company's oil and gas
reserves or the costs that would be incurred to obtain equivalent reserves.
F-22
<PAGE>
ESTIMATED QUANTITIES OF RESERVES
Oil quantities are expressed in thousands of barrels and gas volumes
in millions of cubic feet. Natural gas liquids are combined with oil quantities.
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
OIL GAS OIL GAS OIL GAS
(MBBL) (MMCF) (MBBL) (MMCF) (MBBL) (MMCF)
------- --------- ------ --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
PROVED RESERVES
Balance beginning of year 544.6 5,961.2 329.0 5,078.8 473.6 8,598.4
Revisions of previous estimates (11.7) (1,009.3) 55.1 1,879.0 (1.2) 945.2
Extensions, discoveries and
other additions - - 4.6 174.2 0 277.6
Production (127.1) (1,348.6) (94.6) (1,332.3) (112.0) (1,466.9)
Acquisition of minerals in place 397.0 5,101.0 250.5 161.5 - -
Sale of minerals in place (113.3) - - - (31.4) (3,275.5)
------ -------- ----- -------- ------ --------
Balance end of year 689.5 8,704.3 544.6 5,961.2 329.0 5,078.8
====== ======== ===== ======== ====== ========
</TABLE>
<TABLE>
1995 1994 1993
---- ---- ----
OIL GAS OIL GAS OIL GAS
(MBBL) (MMCF) (MBBL) (MMCF) (MBBL) (MMCF)
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
PROVED DEVELOPED RESERVES
Balance beginning of year 544.6 5,961.2 329.0 5,078.8 473.6 8,598.4
Balance end of year 492.7 6,932.4 544.6 5,961.2 329.0 5,078.8
</TABLE>
F-23
<PAGE>
AMERAC ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS AND
CHANGES THEREIN RELATING TO PROVED OIL AND GAS RESERVES
The Standardized Measure of Discounted Future Net Cash Flows and Changes
Therein Relating to Proved Oil and Gas Reserves ("Standardized Measure") does
not purport to present the fair market value of a company's oil and gas
properties. An estimate of such value should consider, among other factors,
anticipated future prices of oil and gas, the probability of recoveries in
excess of existing proved reserves, the value of probable reserves and acreage
prospects, and perhaps different discount rates. It should be noted that
estimates of reserve quantities, especially from new discoveries, are inherently
imprecise and subject to substantial revision.
Under the Standardized Measure, future cash inflows were estimated by
applying year-end prices, adjusted for fixed and determinable escalations, to
the estimated future production of year-end proved reserves. Future cash inflows
were reduced by estimated future production and development costs based on year-
end costs to determine pre-tax cash inflows. Future income taxes were computed
by applying the statutory tax rate to the excess of pre-tax cash inflows over
the Company's tax basis in the associated proved oil and gas properties. Tax
credits and net operating loss carryforwards were also considered in the future
income tax calculation. Future net cash inflows after income taxes were
discounted using a 10% annual discount rate to arrive at the Standardized
Measure.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1995 1994 1993
--------- -------- --------
(amounts in thousands)
<S> <C> <C> <C>
Future cash inflows $ 31,175 $17,826 $15,808
Future production and development costs (11,894) (6,811) (4,241)
Future income tax expenses - - -
-------- ------- -------
Future net cash flows 19,281 11,015 11,567
10% annual discount for estimated
timing of cash flows (5,230) (2,625) (1,884)
-------- ------- -------
Standardized measure of discounted
future net cash flows $ 14,051 $ 8,390 $ 9,683
======== ======= =======
</TABLE>
F-24
<PAGE>
AMERAC ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
The following table sets forth an analysis of changes in the Standardized
Measure of Discounted Future Net Cash Flows from Proved Oil and Gas Reserves:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
(amounts in thousands)
Beginning of year $ 8,390 $ 9,683 $15,401
Sales of oil and gas produced, net of
production costs (3,220) (3,231) (3,353)
Net changes in sales prices and production
costs (2) 3,792 (1,907) (950)
Extensions and discoveries, less applicable
future development and production costs - 163 325
Previously estimated development costs
incurred during the period 230 12 -
Revisions of previous estimates, including
revised estimates of development costs,
reserves and rates of production (1,406) 1,138 1,070
Accretion of discount 839 968 1,540
Purchase of reserves 6,062 1,698 -
Sale of reserves (763) - (3,654)
Other (2) 127 (134) (696)
------- ------- -------
End of year (1) $14,051 $ 8,390 $ 9,683
======= ======= =======
</TABLE>
_________________________
(1) The revenues generated by the Company are highly dependent upon the prices
of oil and gas. In accordance with the guidelines established by the Securities
and Exchange Commission, the year-end reserves are valued at prices in effect at
December 31 of each year, even though these prices may differ significantly from
prices actually received during the year. Prices used to value reserves were
approximately $ 17.98 , $14.61, and $12.02 per barrel of oil and $2.14 , $1.65,
and $2.34 per Mcf of gas as of December 31, 1995, 1994 and 1993, respectively.
(2) During 1995, 1994 and 1993, the prices the Company received from its sales
of oil and gas averaged $16.53 , $15.25, and $14.52 per barrel of oil and $1.62,
$2.01, and $1.88 per Mcf of gas, respectively. The amount designated as "Other"
in the analysis of changes primarily represents the difference between the
amount actually received from 1995, 1994 and 1993 production and the value
attributed to those reserves at December 31, 1994, 1993 and 1992 (using the
year-end prices).
F-25
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AMERAC ENERGY CORPORATION
Company
March 28, 1996 /s/Jeffery L. Stevens
-------------------------------------
Jeffrey L. Stevens
Senior Vice President and Chief
Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the company
and in the capacities and on the dates indicated.
March 28, 1996 /s/Jeffrey B. Robinson
-------------------------------------
Jeffrey B. Robinson
Director and President and Chief
Executive Officer
(Principal Executive Officer)
March 28, 1996 /s/Jeffrey L. Stevens
-------------------------------------
Jeffrey L. Stevens
Senior Vice President and Chief
Financial Office (Principal Financial
Officer)
March 28, 1996 /s/Kenneth R. Peak
-------------------------------------
Kenneth R. Peak
Director
March 28, 1996 /s/Michael L. Harvey
-------------------------------------
Michael L. Harvey
Director
F-26
<PAGE>
Exhibit 27
AMERAC ENERGY CORPORATION
Pro Forma Condensed Consolidated Financial Information
(Unaudited)
The following unaudited pro forma condensed consolidated financial
information, combine the historical information of Amerac and the properties
acquired from Fremont Energy Corporation ("Fremont") on January 15, 1996
("Acquired Properties"). The Pro Forma statement of operations for the year
ended December 31, 1995 reflect the consolidated operations of Amerac, Acquired
Properties and other oil and gas properties acquired during 1995 as if the
acquisitions were consummated on January 1, 1995. The unaudited pro forma
balance sheet reflects the acquisition of Fremont as if it had occurred on
December 31, 1995.
The unaudited proforma balance sheet and consolidated statement of
operations are provided for comparative purposes only and should be read in
conjunction with the historical consolidated financial statements of the
Registrant included in the 1995 Annual Report on Form 10-K and the historical
statements of revenues and direct operating expenses of the Acquired Properties
and the related notes thereto included herewith. The pro forma information
presented is not necessarily indicative of the future combined financial results
or as they might have been for the period indicated had the acquisition been
consummated at the beginning the period.
1
<PAGE>
AMERAC ENERGY CORPORATION
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET
December 31, 1995
<TABLE>
<CAPTION>
Amerac Adjustments
Historical (Note 2) Pro Forma
-------------- ------------ --------------
<S> <C> <C> <C>
Assets
------
Current assets
Cash and equivalents $ 144,000 $ (139,000) $ 5,000
Accounts receivable 2,109,000 16,000 2,125,000
------------- ---------- -------------
Total current assets 2,253,000 (123,000) 2,130,000
Oil and gas properties net
(successful efforts method) 8,594,000 7,761,000 16,355,000
Other assets 347,000 - 347,000
------------- ---------- -------------
$ 11,194,000 $7,638,000 $ 18,832,000
============= ========== =============
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities
Accounts payable and accrued liabilities $ 606,000 $ 130,000 $ 736,000
------------- ---------- -------------
Total current liabilities 606,000 130,000 736,000
Long-term debt, banks 3,547,000 6,868,000 10,415,000
Other long-term liabilities 1,047,000 - 1,047,000
------------- ---------- -------------
Total long-term liabilities 4,594,000 6,868,000 11,462,000
Stockholders' equity
Senior preferred 1,786,000 - 1,786,000
Common stock 1,031,000 165,000 1,196,000
Additional paid-in capital 142,211,000 475,000 142,686,000
Accumulated deficit (139,034,000) - (139,034,000)
------------- ---------- -------------
Total stockholders' equity 5,994,000 640,000 6,634,000
------------- ---------- -------------
$ 11,194,000 $7,638,000 $ 18,832,000
============= ========== =============
</TABLE>
(The accompanying notes are an integral part of this unaudited condensed
consolidated pro forma balance sheet.)
2
<PAGE>
AMERAC ENERGY CORPORATION
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31, 1995
----------------------------------------------------------------------
Previous
Acquired Adjust-
Amerac Acquired Properties ments
Historical Properties (Note 3) (Note 3) Pro Forma
------------ ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
REVENUES
Oil, gas and related product sales $4,328,000 $2,034,000 $ 546,000 $ - $6,908,000
Gain on sales of assets 850,000 - - - 850,000
Interest income 74,000 - - - 74,000
---------- ---------- --------- ----------- ----------
Total revenues 5,252,000 2,034,000 546,000 - 7,832,000
---------- ---------- --------- ----------- ----------
EXPENSES
Lease operations 1,108,000 731,000 88,000 - 1,927,000
Explorations expenses, including
dry hole costs and impairments 246,000 - - - 246,000
Depreciation, depletion
and amortization 1,686,000 - 175,000 511,000 2,372,000
Administrative 1,767,000 - - - 1,767,000
Interest 237,000 - 99,000 673,000 1,009,000
---------- ---------- --------- ----------- ----------
Total Expenses 5,044,000 731,000 362,000 1,184,000 7,321,000
---------- ---------- --------- ----------- ----------
Income before tax 208,000 1,303,000 184,000 (1,184,000) 511,000
Provision for federal income tax - - - - -
---------- ---------- --------- ----------- -----------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM $ 208,000 $1,303,000 $ 184,000 $(1,184,000) $ 511,000
========== ========== ========= =========== ===========
NET INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM APPLICABLE
TO COMMON SHAREHOLDERS $ (599,000) $1,303,000 $ 184,000 $(1,184,000) $ (296,000)
========== ========== ========= =========== ===========
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM PER
COMMON SHARE $ (0.03) $ .07 $ .01 $ (.06) $ (.01)
========== ========== ========= =========== ===========
AVERAGE COMMON SHARES
OUTSTANDING 19,594,000 3,300,000 $22,894,000
========== ========== ===========
</TABLE>
(The accompanying notes are an integral part of this unaudited condensed
consolidated pro forma statement of operations.)
3
<PAGE>
AMERAC ENERGY CORPORATION
Notes to Unaudited Condensed Consolidated Pro Forma Balance Sheet as of
December 31, 1995
and
Unaudited Condensed Consolidated Pro Forma Statement of Operations
for the Year Ended December 31, 1995
1. TRANSACTION
In January 1996, the Company acquired the common stock of Fremont
Energy Corporation ("Fremont"), an Oklahoma-based oil and gas company, for
$7.0 million in cash and 3.3 million shares of the Company's Common Stock.
Prior to the close of the transaction, certain assets and liabilities of
Fremont were transferred to a new corporation not acquired by the Company.
The only remaining assets in Fremont were the oil and gas properties
("Acquired Properties") and certain insignificant receivables and payables
related to the Acquired Properties.
2. PRO FORMA BALANCE SHEET ADJUSTMENTS
The accompanying unaudited condensed consolidated pro forma balance
sheet reflects the Company's balance sheet as if the transaction had been
effective December 31, 1995. The following adjustments are included:
(a) The cash portion of the purchase price is funded through bank borrowing
to the limit of the available credit with the balance paid in current
cash.
(b) The Common Stock portion of the transaction was calculated using a
stock price of $.19/share on 3.3 million shares issued before the
acquisition and split between Common Stock and additional paid in
capital for the excess over par value.
(c) Minor receivables and payables assumed are reflected on the
statements. In addition accrued acquisition costs were included in
accounts payable and accrued liabilities.
(d) Total purchase price of $7.6 million reflects allocation of the
purchase price to the proved producing properties.
3. PRO FORMA STATEMENT OF OPERATION ADJUSTMENTS
The accompanying unaudited condensed consolidated pro forma statements
of operations reflect the following adjustments for the Acquired Properties
and other properties previously acquired in 1995:
(a) Depreciation, depletion and amortization expense has been computed
using the units of production method and reflects the Company's
increased investment in oil and gas properties and increased production
therefrom.
(b) No additional general and administrative expense is expected as
management believes it can absorb these operations without additional
personnel.
(c) As the Company has a large deferred tax benefit (primarily relating to
net operating losses), which is fully reserved, no income tax provision
is necessary.
(d) Interest expense was calculated based upon the interest rate that would
be payable under the BankOne Credit Agreement as if it were used to
finance the acquisitions.
4. EARNINGS PER SHARE
Net income or loss per common share is computed by dividing the net
income or loss applicable to common stockholders by the weighted average
number of shares of common stock outstanding which includes the 3.3 million
shares issued in connection with the Fremont acquisition. The net loss per
share was adjusted for the dividends on the $4.00 Senior Preferred. The
stock options are anti-dilutive and were not included in the calculation of
income or losses per common share.
5. OIL AND GAS RESERVE INFORMATION
The proved reserves relating to the Acquired Properties would have
represented approximately 51% of Amerac's total proved reserves as of
December 31, 1995 which, after including the Acquired Properties, would have
been approximately 4.4 million barrels of oil equivalent ("BOE") in 1995.
The reserve quantities of the Acquired Properties were estimated by an
independent oil and gas reservoir engineering firm. All estimates were
prepared in accordance with guidelines established by the Securities and
Exchange Commission. All of the reserves are located within the United
States.
4
<PAGE>
Statement of Revenues and Direct
Operating Expenses of Properties
Acquired by Amerac Energy Corporation
5
<PAGE>
Report of Independent Accountants
To the Board of Directors of
Amerac Energy Corporation and Fremont Energy Corporation
We have audited the accompanying statements of revenues and direct operating
expenses attributable to certain oil and gas properties acquired by Amerac
Energy Corporation from Fremont Energy Corporation (the "Statements") for the
nine months ended December 31, 1995, and for the years ended March 31, 1995 and
1994. These Statements are the responsibility of Amerac Energy Corporation and
Fremont Energy Corporation's management. Our responsibility is to express an
opinion on the Statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the Statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the Statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the Statements. We believe that
our audits provide a reasonable basis for our opinion.
The accompanying Statements were prepared for the purpose of complying with the
rules and regulations of the Securities and Exchange Commission for inclusion in
a report on Form 8-K of Amerac Energy Corporation as described in Note 2 and is
not intended to be a complete presentation of revenues and direct operating
expenses.
In our opinion, the Statements referred to above present fairly, in all material
respects, the revenues and direct operating expenses of the properties acquired
by Amerac Energy Corporation described in Note 2 for the nine months ended
December 31, 1995 and for the years ended March 31, 1995 and 1994, in conformity
with generally accepted accounting principles.
Price Waterhouse LLP
Fort Worth, Texas
March 26, 1996
6
<PAGE>
STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
OF PROPERTIES ACQUIRED BY AMERAC ENERGY CORPORATION
<TABLE>
<CAPTION>
For the nine For the nine For the year For the year
months ended months ended ended ended
December 31, December 31, March 31, March 31,
1995 1994 1995 1994
---------------- ------------ ------------ ------------
(unaudited)
<S> <C> <C> <C> <C>
Revenues:
Oil and Gas sales $1,418,000 $ 1,585,000 $ 2,200,000 $ 2,364,000
Direct operating expenses:
Lease operating expense 423,000 400,000 610,000 645,000
Severance taxes 68,000 83,000 114,000 146,000
------------ ----------- ----------- -----------
491,000 483,000 724,000 791,000
------------ ----------- ----------- -----------
Excess of revenues over direct
operating expenses $ 927,000 $ 1,102,000 $ 1,476,000 $ 1,573,000
============ =========== =========== ===========
</TABLE>
(The accompanying notes are an integral part of these Statements.)
7
<PAGE>
NOTES TO STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
OF PROPERTIES ACQUIRED BY AMERAC ENERGY CORPORATION
- --------------------------------------------------------------------------------
1. THE PROPERTIES
The accompanying Statements represent the revenue and direct operating
expenses attributable to the oil and gas properties acquired by Amerac from
Fremont on January 15, 1996. Amerac acquired the common stock of Fremont
for $7.0 million in cash and 3.3 million shares of Common Stock.
2. BASIS OF PRESENTATION
Historical financial statements reflecting financial position, results
of operations and cash flows required by generally accepted accounting
principles are not presented on Fremont, as such information is not
meaningful for the properties acquired. Prior to the closing of the
acquisition, certain assets and related liabilities of Fremont were
transferred to a new corporation not acquired by Amerac. The remaining
assets of Fremont were the Acquired Properties. Therefore, it is not
possible to allocate certain expenses to the operations transferred.
Accordingly, the Statements are presented in lieu of the financial
statements required under Rule 3-05 of Securities and Exchange Commission
Regulation S-X.
Revenues and direct operating expenses included in the accompanying
Statements represents the net working interests in the properties acquired
and are presented on the accrual basis of accounting. No provision has been
made for depreciation, depletion, and amortization, allocated general and
administrative expenses, or corporate income taxes.
3. OIL AND GAS RESERVES INFORMATION (UNAUDITED)
Unaudited reserve information as of March 31, 1994 and 1995 and
December 31, 1995, related to the Acquired Properties, is presented in the
table below.
<TABLE>
<CAPTION>
Oil Gas
(Bbl) (Mcf)
----- -----
Oil and Gas Reserves Quantities
-------------------------------
<S> <C> <C>
PROVED RESERVES:
March 31, 1993 892,000 10,881,000
Production (82,000) (586,000)
------- ----------
March 31, 1994 810,000 10,295,000
Production (75,000) (584,000)
------- ----------
March 31, 1995 735,000 9,711,000
Production (50,000) (420,000)
------- ----------
December 31, 1995 685,000 9,291,000
======= ==========
PROVED DEVELOPED RESERVES:
As of March 31, 1994 632,000 10,295,000
As of March 31, 1995 557,000 9,711,000
As of December 31, 1995 507,000 9,291,000
</TABLE>
8
<PAGE>
NOTES TO STATEMENT OF REVENUES AND DIRECT OPERATING EXPENSES
OF PROPERTIES ACQUIRED BY AMERAC ENERGY CORPORATION
The standardized measure of discounted future net cash flows ("standardized
measure") relating to proved oil and gas reserves is calculated in accordance
with Statement of Financial Accounting Standards No. 69. The standardized
measure has been prepared assuming year-end selling prices adjusted for future
fixed and determinable contractual price changes, year-end development and
production costs an a 10% annual discount rate. The reserves and the related
standardized measure at December 31, 1995 as evaluated by Ryder Scott, were
adjusted for production during the periods presented, in addition, the
standardized measure was also adjusted for price changes to derive reserves and
the standardized measure as of March 31, 1995 and 1994. The standardized measure
is not the fair market value of the mineral interest sold and the standardized
measure presented for the proved oil and gas reserves is not representative or
their value.
<TABLE>
<CAPTION>
Nine months Year Ended Year Ended
Ended December March 31, March 31,
1995 1995 1994
--------------- ----------- -----------
<S> <C> <C> <C>
Future cash inflows $28,975 $27,836 $30,405
Future production and development costs (11,399) (11,420) (10,913)
Future income tax expense - - -
------- ------- -------
Future net cash flows undiscounted 17,576 16,416 19,492
10% annual discount for estimated timing
of cash flows ( 8,534) (8,051) (10,103)
------- ------- -------
STANDARDIZED MEASURE OF DISCOUNTED
FUTURE NET CASH FLOWS $ 9,042 $ 8,365 $ 9,389
======= ======= =======
</TABLE>
The following are principal sources of
change in the standardized measures of
discounted future net cash flows:
<TABLE>
<CAPTION>
Nine months Year Ended Year Ended
Ended December March 31, March 31,
1995 1995 1994
------------- ---------- ----------
<S> <C> <C> <C>
STANDARDIZED MEASURE OF DISCOUNTED
FUTURE NET CASH FLOWS AT BEGINNING OF
PERIOD $8,365 $9,389 $9,707
Changes resulting from:
Net changes in prices 674 452 -
Sales of oil and gas produced (927) (1,476) (1,289)
Accretion of discounts 930 939 971
------- ------- --------
STANDARDIZED MEASURES OF DISCOUNTED
FUTURES NET CASH FLOWS AT END OF PERIOD $9,042 $9,304 $9,389
======= ======= =======
</TABLE>
9
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this amended report to be signed on its behalf by
the undersigned thereunto duly authorized.
AMERAC ENERGY CORPORATION
(Registrant)
By: ____________________________________
Jeffrey L. Stevens
Sr. Vice President and
Chief Financial Officer
Date: March 29, 1995
10
<PAGE>
EXHIBIT 10-(8)
AGREEMENT FOR FINANCIAL SERVICES AND ACCOUNTING
-----------------------------------------------
This Agreement for Financial and Accounting Services (the "Agreement") is
entered into this 26th day of October, 1995, to be effective as of the 1st day
of January, 1996 (the "Effective Date"), by and between AMERAC ENERGY
CORPORATION (referred to as the "Client"), and PETROLEUM FINANCIAL, INC., a
Texas corporation ("Consultant").
In consideration of the mutual promises herein contained, the parties
hereby agree as follows:
1. Engagement. As of the Effective Date, the Client hereby engages
----------
Consultant, and Consultant hereby accepts such engagement, to render to the
Client financial and accounting services as listed on Exhibit "A" upon the terms
and subject to the conditions set forth herein.
2. Services. Consultant agrees and recognizes that Client (i) is the
--------
owner of both non-operating and operating undivided working and royalty
interests in producing and nonproducing oil and gas properties and (ii) is
relying on Consultant to provide the foregoing by the performance of the
services described on Exhibit "A" pursuant to this Agreement, in the same
prudent manner as would Consultant if Consultant were the owner of the
properties. Accordingly, Consultant will perform the services listed on Exhibit
"A" hereof in a prudent, good and workmanlike manner consistent with the highest
industry standards. In addition, Jeffrey Stevens agrees to serve and the Client
agrees to retain him as, Senior Vice President - Chief Financial Officer and
Secretary for the term of this Agreement. Consultant represents and warrants,
to Client, that it is familiar with and specializes in, the performance of the
services described on Exhibit "A" and possesses the expertise and skilled
personnel necessary to perform such services in a professional manner.
Consultant shall, through its officers, employees and representatives make
itself available to consult with the Board of Directors, the officers and
employees of Client and the department heads of the administrative staff of
Client at reasonable times, concerning matters pertaining to the rendering of
the services described on Exhibit "A". Consultant shall devote such time to the
performance of the services described on Exhibit "A" as is reasonably necessary
for the satisfactory performance thereof.
3. Term. The term of this Agreement (the "Initial Term") shall commence
----
on the Effective Date, shall continue through December 31, 1996. This Agreement
shall be renewed automatically for successive annual periods thereafter (a
"Renewal Term") unless notice is given in writing at least ninety (90) days
prior to the expiration. Consultant may terminate at any time if timely payment
is not made.
4. Compensation. As compensation for Consultant's agreement to enter into
------------
this Agreement and in consideration of the services to be performed by
Consultant under this agreement, the Client shall pay Consultant a fee as
provided on Exhibit "B" for the term of this Agreement, payable in monthly
installments on or before the 1st day of each
<PAGE>
month. Client shall pay out-of-pocket costs such as bank charges, third party
programming, check printing charges, mailing costs, travel and entertainment
directly related to the Client, long distance phone charges, etc.
5. Indemnification. Client shall hold harmless and indemnify Contractor,
---------------
its employees, officers, directors and shareholders (collectively, the
"Indemnified Persons"), in the event that an Indemnified Person was or is made
or is threatened to be made a party to or a witness in any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, related to or arising out of the performance by Client of its
duties hereunder or in any way related to this Agreement, against all expenses
(including attorneys' fees and disbursements), judgments, fines (including
excise taxes and penalties) and amounts paid in settlement actually and
reasonably incurred by the Indemnified Person(s) (collectively, the
"Liabilities") in connection with such action, suit or proceeding if the
Indemnified Person acted in good faith and in a manner it reasonably believed to
be in or not opposed to the best interests of the Company, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe its
conduct was unlawful. The foregoing indemnity shall not be provided, however,
with respect to Liabilities arising out of or resulting from (i) the gross
negligence or willful misconduct of the Indemnified Person or (ii) any breaches
or violations of any fiduciary duty owed by the Indemnified Person whether by
statute, at common law or in equity to the Client.
Upon request by an Indemnified Person, the Client shall, within ten (10)
days of such request, pay all expenses (including attorneys' fee and
disbursements) incurred by the Indemnified Person by reason of its participation
in an action, suit, or proceeding referred to in the preceding paragraph hereof
in advance of the final disposition of such action, suit or proceeding. The
Indemnified Person shall be required to reimburse the Client for all or an
appropriate portion of the expenses advanced to it pursuant to the preceding
paragraph hereof if it shall be ultimately determined that it is not entitled to
be indemnified, or not entitled to be fully indemnified, because indemnification
in the particular circumstances is not permitted under applicable law.
If an Indemnified Person is entitled under any provision of this Agreement
to indemnification by the Client for some or a portion of the expenses,
judgments, fines or penalties actually or reasonably incurred by the Indemnified
Person in the preparation, investigation, defense, appeal or settlement of any
civil or criminal action, suit or proceeding, but not, however, for the total
amount thereof, the Client shall nevertheless indemnify the Indemnified Person
for the portion of such expenses, judgments, fines or penalties to which the
Indemnified Person is entitled.
If the Indemnification provided in the first paragraph of this section is
unavailable and may not be paid to an Indemnified Person because such
indemnification is not permitted by law, then in respect of any threatened,
pending or completed action, suit
2
<PAGE>
or proceeding in which the Client is jointly liable with Indemnified Person (or
would be joined in such action, suit or proceeding), the Client shall, to the
extent permitted by law, contribute to the amount of expenses (including
attorneys' fees and disbursements), judgments, fines (including excise taxes and
penalties) and amounts paid in settlement actually and reasonably incurred and
paid or payable by the Indemnified Person in such proportion as is appropriate
to reflect (i) the relative benefits received by the Client on the one hand and
the Indemnified Person on the other hand from the transaction from which such
action, suit or proceeding arose, and (ii) the relative fault of the Client on
the one hand and of the Indemnified Person on the other in connection with
events which resulted in such expenses, judgments, fines or settlement amounts,
as well as any other relevant equitable considerations. The relative fault of
the Client on the one hand and of the Indemnified Person on the other shall be
determined by reference to, among other things, the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent the
circumstances resulting in such expenses, judgments, fines or settlement
amounts. The Client agrees that it would not be just and equitable if
contribution pursuant to this subparagraph were determined by pro rata
allocation or any other method of allocation which does not take account of the
foregoing equitable considerations.
All obligations of the Client contained herein shall continue during the
term of this Agreement and shall continue thereafter so long as any Indemnified
Person shall be subject to any possible claim or threatened or pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, arising out of the performance by Contractor of its duties
hereunder or otherwise related to the existence of this Agreement.
Promptly after receipt by an Indemnified Person of notice of the
commencement of any action, suit or proceeding in which the Indemnified Person
is made or is threatened to be made a party or a witness, the Indemnified Person
shall notify the Client of the commencement of such action, suit or proceeding;
but the omission so to notify the Client from any obligation it may have to
indemnify or advance expenses to the Indemnified Person otherwise than under
this Agreement, except to the extent that the Client is prejudiced thereby.
Subject to the provisions of the subsequent paragraph, the Indemnified Person
shall not settle any claim or action in any manner which would impose on the
Client any penalty, constraint, or obligation without the Client's prior written
consent, which consent shall not be unreasonably withheld.
If any action, suit or proceeding, or any claim, commenced against an
Indemnified Person with respect to which the indemnification provisions of the
first paragraph of this section hereof apply, the Client shall be entitled to
participate therein at its own expense and, except as otherwise provided
hereinbelow, to the extent that it may wish, the Client shall be entitled to
assume the defense thereof. After notice from the Client to the Indemnified
Person of its election to assume the defense of any action, suit or proceeding,
except as provided hereafter in this paragraph, the Client shall not be
3
<PAGE>
obligated to the Indemnified Person under this Agreement for any legal or other
expense subsequently incurred by the Indemnified Person in connection with the
defense thereof other than reasonable costs of investigation arising out of the
Indemnified Person's participation in such action, suit, or proceeding. The
Indemnified Person shall have the right to employ its own counsel in such
action, suit or proceeding, but the fees and expenses of such counsel incurred
after notice from the Client to the Indemnified Person of its assumption of the
defense thereof shall be at the expense of the Indemnified Person unless (i)
otherwise authorized by the Client or (ii) the Indemnified Person shall have
reasonably concluded, and shall have provided the Client with a legal opinion
from counsel reasonably acceptable to the Client, that under applicable
professional standards the Client and the Indemnified Person should be
represented by separate counsel in the conduct of the defense of such action,
suit or proceeding, or (iii) the Client shall not in fact have employed counsel
to assume the defense of such action, suit or proceeding, in which case the fees
and expenses of the Indemnified Person's counsel shall be at the expense of the
Client.
6. Confidentiality. Consultant (including its Affiliates) shall keep
---------------
confidential the trade secrets and other confidential information of the Client
to which it has access for purposes of carrying out the provisions of this
Agreement and, except as required by legal or regulatory requirements beyond the
control of such party, shall not disclose any such information to unauthorized
persons or utilize any such information except in the performance of its
respective duties under this Agreement. The provisions of this Section 6 shall
not apply to any information required to be disclosed by law, that is otherwise
publicly available, or that is disclosed with the written consent of the owner
thereof. The parties shall use their best efforts to obtain the agreement of
all of their respective officers, directors, employees, attorneys, agents,
consultants and other representatives to observe the terms of this Section 6;
provided, however, that neither party shall be vicariously liable for the
- -------- -------
actions of any such person acting in deliberate disregard of the obligation to
maintain confidentiality. The provisions of this Section 6 shall survive any
termination of this Agreement.
7. Contract. Contractor will be instructed by Client from time to time to
--------
hire on behalf of Client certain third party consultants, such as Price
Waterhouse, and various law firms to perform work for Client. No such third
party consultant shall be hired without the express prior approval of Client,
and Contractor shall provide updates from time to time as requested by Client.
Such third party consultants shall bill Amerac directly for all costs so
incurred in the performance of such work for Client. Client will be solely
responsible for paying these third party costs. Any third party consultants
hired to benefit Contractor and not Client will be the sole cost and
responsibility of Contractor. This Article shall not apply to any third party
contractor whose billings are estimated to be less than $5,000.00 for any six
month period, effective the date of this Contract, or those third party
contractors retained for the purposes described on Exhibit "C".
4
<PAGE>
8. Subcontracting. In the event Contractor subcontracts any of the work
--------------
to be performed or services to be rendered hereunder, or contracts for the
furnishing of any services required to be furnished by a subcontractor, then
such contracts shall contain releases of liability, insurance requirements and a
hold harmless provision, in favor of Client, such that subcontractor shall look
only to Contractor for specific performance under subcontractors' contract.
9. Accounting. Among the various accounting services to be performed,
----------
Contractor will prepare cash flows, internal financial statement, filings with
Securities and Exchange Commission and all additional schedules, calculations
and statements reasonably requested by Client, as had been performed by those
employees prior to entering into this Contract, on an unaudited basis. Even
though certain individuals involved with these financial statements are
Certified Public Accountants, any financial statements of any sort prepared for
Client by Contractor's employees or officers will be unaudited and will be a
compilation of information made available to them.
10. Taxes. The charges and other amounts payable by one party to the
-----
other under this Agreement shall be exclusive of any sales tax now or hereafter
payable. The parties shall cooperate with each other to minimize any applicable
sales tax and, in connection therewith, the parties shall provide each other
with any resale certificates, information regarding out-of-state use of
materials, services or sales, or other exemption certificates.
Consultant shall be responsible for all sales tax incurred in connection
with its purchase of any supplies, materials, equipment, software or services
for use in rendering the services.
11. Audit. Client shall have the continuing right during the term of this
-----
service contract, or so long as Client owns an equity interest in Contractor to
audit Contractors' books, records and accounts. Contractor shall cooperate with
and provide complete access to all such documentation, and to the Contractors'
premises during business hours, if different from Client's premises.
12. Relationship. Consultant in furnishing services to the Client
------------
hereunder is providing such services only as an independent contractor. This
Agreement does not create, and shall not be construed to create, any employer-
employee, joint venture or partnership relationship between the parties hereto.
No officer, employee, agent, servant or independent contractor of either party
hereto or their respective Affiliates shall at any time be deemed to be an
employee, servant, agent or contractor of any other party for any purpose
whatsoever.
13. Waiver. The failure of any party hereto to seek a redress for
------
violation, or to insist upon the strict performance of any covenant, agreement,
provision or condition of this Agreement, shall not constitute the waiver of the
terms of such covenant,
5
<PAGE>
agreement, provision or condition at subsequent times or of the terms of any
other covenant, agreement, provision or condition, and the parties hereto shall
have all remedies provided herein with respect to any subsequent act which would
have originally constituted the violation hereunder.
14. Governing Law. THIS AGREEMENT, AND ALL QUESTIONS RELATING TO ITS
-------------
VALIDITY, INTERPRETATION, PERFORMANCE AND ENFORCEMENT (INCLUDING, WITHOUT
LIMITATION, PROVISIONS CONCERNING LIMITATIONS OF ACTION), SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF TEXAS,
NOTWITHSTANDING ANY CONFLICT-OF-LAWS DOCTRINES OF SUCH STATE OR OTHER
JURISDICTION TO THE CONTRARY.
15. Notices. All notices, requests, demands and other communications
-------
required or permitted hereunder shall be in writing and shall be deemed to have
been fully given, made and received only when personally delivered or delivered
by Federal Express or other nationally recognized courier service, or three days
after having been deposited in the United States mail, certified mail, postage
prepaid, return receipt requested, addressed as set forth below:
If to Consultant:
Petroleum Financial, Inc.
1025 Fort Worth Club Building
306 West Seventh Street
Fort Worth, TX 76102
Attention: Jeffrey L. Stevens
President
If to the Client:
Amerac Energy Corporation
700 Louisiana, Suite 3300
Houston, TX 77002
Attention: Jeffrey Robinson
President
Any party may change the address to which communications or copies are to be
sent by giving notice of such change of address in conformity with the
provisions of this Section 10 for the giving of notice.
16. Entire Agreement. This Agreement contains the entire understanding
----------------
among the parties hereto with respect to the subject matter hereof, and
supersedes all prior and contemporaneous agreements and understandings,
inducements or conditions,
6
<PAGE>
express or implied, oral or written, except as herein contained. The express
terms hereof control and supersede any course of performance or usage of the
trade inconsistent with any of the terms hereof. This Agreement may not be
modified or amended other than by an agreement in writing.
17. Headings. The headings in this Agreement are for convenience only
--------
and they form no part of this Agreement and shall not affect its interpretation.
18. Multiple Counterparts. This Agreement may be executed in
---------------------
counterparts, each of which shall be deemed an original, and all such
counterparts together shall constitute but one and the same instrument.
19. Assignment. No party may or shall have the power to assign this
----------
Agreement or any right, interest or obligation hereunder, whether by operation
of law or otherwise, without first obtaining the prior written consent of the
other party.
20. No Other Rights in Third Parties. This Agreement shall inure to the
--------------------------------
benefit of and bind the Client, Consultant, the Indemnitee (but only with
respect to Section 5 hereof), successors and permitted assigns. Nothing
expressed or referred to in this Agreement is intended or shall be construed to
give any person other than the Client, Consultant, the Indemnitee and their
respective heirs, executors, administrators, successors or permitted assigns any
legal or equitable right, remedy or claim under or in respect of this Agreement
or any provision contained herein, it being the intention that this Agreement
shall be for the sole and exclusive benefit of such parties and such heirs,
executors, administrators, successors and permitted assigns and not for the
benefit of any other person. References in this Section 15 to "heirs,
executors, administrators, successors and permitted assigns" shall not relieve
the parties from the provisions of Section 15 hereof.
21. Attorneys' Fees. The prevailing party in any dispute arising out of
---------------
the interpretation, application or enforcement of any provision of this
Agreement shall be entitled to recover all of its reasonable attorneys fees and
costs whether suit be filed or not, including, but not limited to, costs and
attorneys' fees related to or arising out of any trial or appellate proceedings.
The provisions of this Section 16 shall survive any termination of this
Agreement.
22. No Implied Covenants. Each party waives and relinquishes any right to
--------------------
assert, either as a claim or as a defense, that the other party is bound to
perform or liable for the non-performance of any implied covenant or implied
duty or implied obligation.
23. Severability. Any provision of this Agreement which is unenforceable
------------
in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability, without invalidating the remaining
provisions hereof, which provisions
7
<PAGE>
shall be enforced to the maximum extent permitted by law and construed in a
fashion to effectuate best the provisions hereof, and any such prohibition or
unenforceability shall not invalidate or render unenforceable such provision in
any other jurisdiction.
24. References. The use of the words "hereof", "herein", "hereunder", and
----------
words of similar import shall refer to this entire Agreement, and not to any
particular article, section, subsection, clause, sentence or paragraph of this
Agreement, unless the context clearly indicates otherwise.
8
<PAGE>
IN WITNESS WHEREOF, Consultant and the Client, by and through their
respective authorized officers, have executed and delivered this Agreement on
this 10th day of November, 1995, to be effective as of the Effective Date.
CONSULTANT:
PETROLEUM FINANCIAL, INC.
By: /s/ Jeffrey L. Stevens
---------------------------
Jeffrey L. Stevens, President
THE CLIENT:
AMERAC ENERGY CORPORATION
By: /s/ Jeffrey L. Robinson
---------------------------
Jeffrey Robinson, President
9
<PAGE>
Exhibit A
Petroleum Financial Inc.
Duties it Performs for Amerac Energy Corporation
1. Performs all accounting, tax and financial reporting to management,
regulatory agencies, and the public.
2. Maintains computer systems and corporate accounting records.
3. Handle all audits by public accountants, joint interest accountants and
regulatory agencies.
4. Jeff Stevens serves as Senior Vice President of Finance (CFO) and Corporate
Secretary.
5. Drafts all communications to the shareholders and the SEC including
proxy's, 10-K's, 10-Q's and registration statements, etc.
6. Maintains all shareholder files and responds to all shareholder matters.
7. Handles all financial matters including relationships with banks, current
debt holders and preferred shareholders, as well as all matters relating to
the issuance of any new securities or debt.
8. Performs all treasury functions.
9. Initiates all financial structures involving new ventures.
10. Handles all compensation, stock option, SAR, and 401K plans and is
instrumental in handling any new compensation arrangements desired by the
Board.
11. Coordinates mutually agreed litigation matters.
12. Assists with office lease matters and maintains general files.
13. Handles land records services.
14. Performs general administrative matters as directed.
<PAGE>
EXHIBIT B
Fee Arrangement
---------------
The base fee for 1996 will be $20,000 a month or $240,000 per year. This fee
will compensate for all services performed by PFI. Certain out of pocket
expenses such as travel and entertainment directly related to services performed
for Client, postage and mailing costs, long distance charges and check printing
will continue to be reimbursed.
Each quarter, a review will be made of the detailed time sheet of Consultant and
a comparison made of the year-to-date charges as compared to the total fee paid
to date. These hours will be priced at the following rate:
Jeff $100 / hr.
Professional 50 / hr.
Support 35 / hr.
Support (clerical) 25 / hr.
If the average monthly hourly charges exceed the base fee by more than $3,333
per month (total more than $280,000 per annum), Consultant will be entitled to a
reimbursement of those charges. Conversely, if the average monthly hourly
charges are less than the base fee by more than $3,333 per month (total less
than $200,000 per annum), Client will receive a refund from Consultant of those
excess charges. No adjustment to the base fee will be made for any variances
that are within an average monthly hourly charge of $16,666 and $23,333. Any
previous quarterly reimbursements to the base fee will be taken into account in
subsequent quarters.
<PAGE>
EXHIBIT 10-9
================================================================================
ACQUISITION AGREEMENT
among
AMERAC ENERGY CORPORATION,
AS BUYER,
POWELL RESOURCES, INC.,
and
THE OTHER
SHAREHOLDERS NAMED HEREIN,
AS SELLERS
and
RIDGEPOINTE RESOURCES, INC.,
FREMONT ENERGY CORPORATION.,
and
FREMONT PETROLEUM CORPORATION
January 5, 1996
================================================================================
<PAGE>
TABLE OF CONTENTS
ARTICLE I PURCHASE AND SALE............................ 1
1.1 The Purchase and Sale............................... 1
1.2 Purchase Consideration.............................. 2
1.3 Deposit............................................. 2
1.4 Intercompany Transactions........................... 2
1.5 Adjustments to Initial Purchase Consideration....... 3
1.6 Preliminary Settlement Statement.................... 5
1.7 Final Accounting.................................... 5
1.8 No Registration; Legends............................ 6
1.9 Power of Attorney and Custody Agreement............. 6
1.10 Closing............................................. 6
1.11 Certification Under Treasury Regulations............ 7
1.12 Allocated Values.................................... 7
ARTICLE II DUE DILIGENCE EXAMINATION;
TITLE AND ENVIRONMENTAL MATTERS.............. 7
2.1 Principal Definitions............................... 7
2.2 Access 11
2.3 Environmental Assessments and Defects............... 11
2.4 Defects and Related Adjustments..................... 14
2.5 Preferential Purchase Rights and Consents to Assign. 16
2.6 Interest Additions.................................. 17
2.7 Casualty Loss....................................... 18
2.8 Arbitration......................................... 18
ARTICLE III REPRESENTATIONS AND WARRANTIES
OF SELLING SHAREHOLDERS...................... 19
3.1 Existence and Power................................. 19
3.2 Authorization....................................... 20
3.3 Governmental Authorization.......................... 20
3.4 Subsidiaries........................................ 20
3.5 Non-Contravention................................... 20
3.6 Binding Effect...................................... 21
3.7 Ownership of Fremont Common Stock and Ridgepointe
Common Stock........................................ 21
3.8 Accredited Investor................................. 22
3.9 Capitalization of Fremont and Ridgepointe........... 22
3.10 Financial Statements................................ 22
3.11 No Material Adverse Change.......................... 23
3.12 No Undisclosed Liabilities.......................... 23
3.13 Legal Compliance.................................... 23
3.14 Tax Returns and Taxes............................... 24
3.15 Financial Advisor Fees.............................. 25
3.16 Litigation.......................................... 25
3.17 Insurance........................................... 25
3.18 Employee Liabilities................................ 25
<PAGE>
3.19 Books and Records................................... 25
3.20 Assets 25
3.21 Intellectual Property Rights........................ 26
3.22 Leases and Wells.................................... 26
3.23 Marketing........................................... 27
3.24 Applicable Contracts................................ 27
3.25 Pooling, Unitization, and Communitization Agreements 27
3.26 Operating Agreements................................ 28
3.27 Environmental Matters............................... 28
3.28 Plugging and Abandonment............................ 29
3.29 Disbursement of Proceeds............................ 29
3.30 Certain Agreements; Payouts......................... 29
3.31 Information......................................... 29
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF AMERAC..... 29
4.1 Corporate Existence and Power....................... 29
4.2 Corporate Authorization............................. 30
4.3 Governmental Authorization.......................... 30
4.4 Subsidiaries........................................ 30
4.5 Non-Contravention................................... 30
4.6 Binding Effect...................................... 30
4.7 Capitalization...................................... 30
4.8 SEC Filings......................................... 31
4.9 Legal Compliance.................................... 31
4.10 Litigation.......................................... 31
ARTICLE V GENERAL COVENANTS............................ 31
5.1 Access to Information............................... 31
5.2 Reasonable Best Efforts............................. 31
5.3 Public Announcements................................ 32
5.4 Notification of Certain Matters..................... 32
5.5 Confidential Information............................ 32
5.6 Certain Tax Matters................................. 33
ARTICLE VI COVENANTS OF SELLING SHAREHOLDERS............ 34
6.1 Conduct of Business of Fremont and Ridgepointe...... 34
6.2 Oil and Gas Operations.............................. 36
6.3 Other Offers........................................ 37
6.4 Imbalances.......................................... 37
6.5 Employee Matters.................................... 38
6.6 Office Lease........................................ 38
ii
<PAGE>
6.7 Expenses............................................ 38
6.8 Records............................................. 38
6.9 Contract Operations Service Agreement; Ancillary
Agreements.......................................... 38
ARTICLE VII COVENANTS OF AMERAC.......................... 38
7.1 Contract Operations Service Agreement; Ancillary
Agreements.......................................... 38
7.2 Federal Income Tax Refund........................... 39
7.3 Bonding Requirements................................ 39
ARTICLE VIII INDEMNIFICATION.............................. 39
8.1 Indemnities of Selling Shareholders................. 39
8.2 Indemnities of Amerac............................... 40
8.3 Notice of Claims; Defense; Settlement............... 40
ARTICLE IX CONDITIONS TO THE OBLIGATIONS TO CLOSE....... 41
9.1 Conditions to Amerac Obligations.................... 41
9.2 Conditions to the Selling Shareholders' Obligations. 43
ARTICLE X TERMINATION.................................. 44
10.1 Termination......................................... 44
10.2 Effect of Termination............................... 44
ARTICLE XI MISCELLANEOUS................................ 45
11.1 Notices............................................. 45
11.2 Survival............................................ 46
11.3 Amendments; No Waivers.............................. 46
11.4 Successors and Assigns.............................. 47
11.5 Entire Agreement.................................... 47
11.6 Governing Law....................................... 47
11.7 Execution by Fremont and Ridgepointe................ 47
11.8 Counterparts........................................ 47
Schedule 1.01 - Ownership of Purchased Stock;
Allocation of Adjusted Purchase Consideration
Schedule 2.3(a) - Environmental Claims
Schedule 3.17 - Fremont/Ridgepointe Insurance
Schedule 3.23 - Matters Relating to Hydrocarbon Marketing
Schedule 3.26 - Matters Relating to Operating Agreements
Schedule 3.27 - Environmental Matters
Schedule 3.30 - Certain Agreements; Payout
Schedule 4.7 - Amerac Capitalization Matters
iii
<PAGE>
Page
----
EXHIBITS
Title Exhibit
- ----- -------
Evaluated Interests (Including Material Evaluated Interests) ...... A
Form of Escrow Agreement .......................................... B
Form of Legend .................................................... C
Form of Custody Agreement ......................................... D
Form of Amended and Restated Power of Attorney .................... E
Form of Accredited Investor Certificate ........................... F
Matters to be Covered by Opinions of Kirk & Chaney ................ G
Matters to be Covered by Opinion of Jackson & Walker, L.L.P. ...... H
Form of Contract Operations Services Agreement .................... I
Form of Registration Rights Agreement ............................. J
Form of Area of Interest Agreement ................................ K
iv
<PAGE>
ACQUISITION AGREEMENT
This ACQUISITION AGREEMENT ("Agreement") is dated as of January 5,
1996, and is among AMERAC ENERGY CORPORATION, a Delaware corporation ("Amerac"),
POWELL RESOURCES, INC., an Oklahoma corporation ("Powell"), THE LANGSTROTH
FAMILY LIMITED I, a Florida limited partnership (the "Partnership"), and the
persons who have executed and delivered this Agreement and who are designated as
"Other Selling Shareholders" on the signature pages hereto (the "Other Selling
Shareholders"; together with Powell and the Partnership, the "Selling
Shareholders"). This Agreement has also been executed by RIDGEPOINTE RESOURCES,
INC., an Oklahoma corporation ("Ridgepointe"), FREMONT ENERGY CORPORATION, an
Oklahoma corporation ("Fremont"), and FREMONT PETROLEUM CORPORATION, an Oklahoma
corporation ("FPC") for the limited purposes set forth hereinafter.
W I T N E S S E T H :
--------------------
WHEREAS, Powell and Ridgepointe each owns the number of issued and
outstanding shares of common stock, par value $.01 per share, of Fremont
("Fremont Common Stock") set forth opposite such party's name in Section I of
Schedule 1.01 hereto; and
- -------------
WHEREAS, each of Fremont and the Selling Shareholders currently owns
the number of issued and outstanding shares of common stock, par value $.50 per
share, of Ridgepointe ("Ridgepointe Common Stock") set forth opposite such
Selling Shareholder's name in Section II of Schedule 1.01 hereto under the
-------------
caption "Current Ownership"; and
WHEREAS, the Selling Shareholders desire to sell, and Amerac desires
to purchase from the Selling Shareholders, all of the shares of Fremont Common
Stock not owned by Ridgepointe and all of the shares of Ridgepointe Common Stock
owned, or to be owned at Closing (as defined in Section 1.10), by the Selling
Shareholders for the consideration and on the terms set forth herein.
NOW, THEREFORE, in consideration of the premises and of the respective
representations, warranties, covenants, agreements and conditions contained
herein, the parties hereto hereby agree as follows:
ARTICLE I
PURCHASE AND SALE
-----------------
1.1 The Purchase and Sale. Upon the terms and subject to the conditions
---------------------
of this Agreement, at the Closing, each Selling Shareholder shall sell, assign,
transfer, and deliver to Amerac, and Amerac shall purchase and acquire from each
Selling Shareholder, that number of shares of Fremont Common Stock and
Ridgepointe Common Stock owned by such Selling Shareholder and set forth
opposite such Selling Shareholder's name in Sections I and II of Schedule 1.01
-------------
hereto.
<PAGE>
1.2 Purchase Consideration. The consideration (the "Initial Purchase
----------------------
Consideration") to be paid by Amerac for all of the issued and outstanding
Ridgepointe Common Stock and all of the issued and outstanding Fremont Common
Stock not owned by Ridgepointe (collectively, the "Purchased Stock") shall be
$7,640,000.00, consisting of an aggregate of (a) that number of shares of common
stock, par value $.05 per share, of Amerac ("Amerac Common Stock") with a value
equal to $640,000.00 based upon the average of the closing prices in the over-
the-counter market as reported by the National Quotation Bureau, Incorporated,
for Amerac Common Stock during the thirty (30) Business Days (as defined
hereinafter) immediately preceding the fifth (5th) Business Day prior to the
Closing Date (as defined in Section 1.10) (the "Amerac Shares"), and (b)
$7,000,000.00 in cash (the "Initial Cash Amount"). The Initial Purchase
Consideration shall be subject to adjustment in accordance with the provisions
of Section 1.5, and as so adjusted, shall be referred to hereinafter as the
"Adjusted Purchase Consideration." For purposes of this Agreement, the term
"Business Days" means any day on which the New York Stock Exchange is open for
trading.
1.3 Deposit. Concurrently with the execution of this Agreement, Amerac
-------
has deposited in escrow with Bank One, Texas, National Association ("Bank"), as
escrow agent, pursuant to an Escrow Agreement in the form attached hereto as
Exhibit B, the sum of $350,000.00, such sum representing five percent (5%) of
- ---------
the Initial Cash Amount (the "Deposit"). Subject to the provisions of this
Section 1.3, following the Closing, all or a portion of the Deposit may be
retained in escrow and applied and disbursed in accordance with the provisions
of Sections 2.3, 2.4, and/or 2.7, as applicable. To the extent that any portion
of the Deposit is not thus retained in escrow at the Closing, such portion of
the Deposit shall be applied to the payment of the Adjusted Purchase
Consideration at the Closing. If this Agreement is terminated, other than by
reason of a breach of this Agreement by Amerac, Amerac and the Selling
Shareholders shall deliver to Bank a written notice instructing Bank to pay to
Amerac the Deposit, plus all accrued interest thereon. If the Selling
Shareholders believe that Amerac has breached this Agreement, and such breach is
grounds for termination in accordance with the provisions hereof, the Selling
Shareholders shall provide to Amerac written notice setting forth the
particulars of the alleged breach. If Amerac is unable to remedy the alleged
breach, and the Selling Shareholders elect to terminate this Agreement as the
result thereof, Amerac and the Selling Shareholders shall deliver to Bank a
joint notice instructing Bank to pay to the Selling Shareholders the Deposit,
plus all accrued interest thereon; provided, however, that if Amerac disputes
the alleged breach, the Selling Shareholders and Amerac shall submit such
dispute to arbitration in accordance with the procedures set forth in Section
2.8. If such a dispute is submitted to arbitration, Amerac and the Selling
Shareholders, or either of them, shall provide to Bank written notice of such
fact that identifies the nature of the dispute and the arbitrator selected and
that instructs Bank to disburse the Deposit and all accrued interest thereon in
accordance with instructions to be delivered to Bank by the arbitrator following
the issuance of the arbitrator's decision. Any such notice delivered
unilaterally by Amerac or the Selling Shareholders shall also be delivered to
the other party, and proof of the delivery of such notice shall be provided to
Bank.
1.4 Intercompany Transactions. The Selling Shareholders shall cause all
-------------------------
intercompany loan accounts and accounts receivable between the Selling
Shareholders and any of their respective parents, subsidiaries, or other
affiliates, on the one hand, and Fremont and
2
<PAGE>
Ridgepointe, on the other hand (including, without limitation, all accounts
receivable owed to Fremont as to which Fremont Exploration, Inc. ("FEI"), is the
account debtor), to be settled immediately prior to the Closing. In addition,
immediately prior to the Closing, the Selling Shareholders shall cause: (a)
Fremont to sell all of the Ridgepointe Common Stock owned by Fremont, as
reflected in Section II of Schedule 1.01 under the caption "Current Ownership,"
-------------
to Powell and Thomas O. Goldsworthy, in the proportions of fifty percent (50%)
to each party; (b) Fremont and Ridgepointe to pay all contingent compensation,
severance, and other distributions that Fremont and/or Ridgepointe are obligated
to pay to their respective officers and employees as the result of the
transactions contemplated in this Agreement; and (c) Fremont to sell to FPC all
of the issued and outstanding shares of common stock, par value $.01 per share,
of Fremont Resources, Inc. ("FRI"), a wholly owned subsidiary of Fremont. No
later than three (3) Business Days prior to the Closing, the Selling
Shareholders shall provide to Amerac documentation reflecting the full payment
and/or cancellation of all such intercompany accounts and the consummation of
all such transactions.
1.5 Adjustments to Initial Purchase Consideration. The Initial Purchase
---------------------------------------------
Consideration shall be adjusted pursuant to the following adjustments to the
Initial Cash Amount:
(a) The Initial Cash Amount shall be adjusted upward by the following:
(i) the amount of the value of all merchantable oil and liquid
hydrocarbons attributable to the Oil and Gas Properties (as defined in
Section 2.1(g)) in storage or existing in stock tanks above the pipeline
connection on or before November 1, 1995, at 7:00 a.m., Central Standard
Time (the "Engineering Date"), the value to be based upon the contract
price in effect as of the Engineering Date (or the market value, if there
is no contract price, determined as of the Engineering Date), less amounts
payable as royalties, overriding royalties, and other burdens upon such
production and severance taxes deducted by the purchaser of such
production;
(ii) the amount of all direct expenditures and costs and prepaid
costs and expenses attributable to the Oil and Gas Properties and other
assets of Fremont and Ridgepointe incurred and actually paid by or on
behalf of Fremont and/or Ridgepointe in the ordinary course of owning and
operating the Oil and Gas Properties and such other assets and that are
attributable to the period of time from the Engineering Date through the
Closing Date, including, without limitation, (A) costs and expenses
---------
incurred and paid by Fremont during such period in connection with the
drilling and completion of the Lady Jon No. 2 Well, to the extent such
costs and expenses are attributable to the undivided five percent (5%)
working interest of Fremont therein, (B) royalties, overriding royalties,
and other similar burdens on production, (C) rentals, shut-in well
payments, and other lease maintenance payments, (D) ad valorem, property,
excise, severance, production taxes, and any other taxes (exclusive of
income taxes) based upon or measured by the ownership of the Oil and Gas
Properties or other assets of Fremont and Ridgepointe, the production of
hydrocarbons, or the receipt of proceeds therefrom, and (E) overhead and
other charges and
3
<PAGE>
expenses billed by or to Fremont under applicable operating agreements,
including operating agreements under which Fremont serves as Operator,
relating to the Oil and Gas Properties, including, without limitation,
expenses paid by Fremont on behalf of third parties and to which Fremont is
entitled to reimbursement under such operating agreements, but exclusive of
--------- --
(X) the general administrative and office overhead expenses of Fremont,
FRI, and Ridgepointe, (Y) expenses incurred by Fremont, Ridgepointe, or the
Selling Shareholders relating to the evaluation of Fremont, Ridgepointe,
and their assets for sale, the solicitation of buyers therefor, and the
negotiation and consummation of the transactions contemplated in this
Agreement, and (Z) expenses incurred by the Selling Shareholders in
connection with the remediation of Environmental Claims (as defined in
Section 2.1(c)) pursuant to Section 2.3, the acquisition of curative with
respect to Defects (as defined in Section 2.4) pursuant to Section 2.4, and
the repair of any Casualty (as defined in Section 2.7) pursuant to Section
2.7;
(iii) the amount of all accounts receivable (A) as to which
neither FEI, FPC, FRI, any Selling Shareholder, nor any other parent,
subsidiary, or other affiliate of Fremont, Ridgepointe, or any Selling
Shareholder is the account debtor, (B) that, as of October 31, 1995, were
not outstanding more than ninety (90) days past the due date expressed in
the related invoice; (C) that are bona fide, valid, and legally enforceable
obligations of the parties thereto or the account debtor in respect
thereof; and (D) that are reflected as current assets on the Interim
Fremont Financial Statements (as defined in Section 3.10(a)), net of the
related reserves for doubtful accounts;
(iv) the amount of any increases provided for in Section 2.6;
(v) the amount of the cash bond posted and maintained by Fremont
with the City of Stockton, Kansas; and
(vi) any other amounts provided for elsewhere in this Agreement
or otherwise agreed upon by the Selling Shareholders and Amerac.
(b) The Initial Cash Amount shall be adjusted downward by the
following:
(i) the gross proceeds received by Fremont from the sale of
hydrocarbons produced from or allocable to the Oil and Gas Properties
between the Engineering Date and the Closing Date, plus the gross proceeds
received by Fremont and Ridgepointe with respect to any other assets of
either of such parties between the Engineering Date and the Closing Date,
including, without limitation, proceeds received from the sale or
disposition of any of the Oil and Gas Properties, but exclusive of (A) the
---------
proceeds to be received by Fremont from the sale prior to the Closing of
all of its shares of Ridgepointe Common Stock to Powell and Thomas O.
Goldsworthy, and (B) the proceeds to be received by Fremont from the sale
prior to the Closing of all of the issued and outstanding shares of common
stock of FRI to FPC;
4
<PAGE>
(ii) an amount equal to all unpaid ad valorem, property,
production, severance, and similar taxes and assessments (exclusive of
income taxes) based upon or measured by the ownership of the Oil and Gas
Properties and the other assets of Fremont and Ridgepointe, the production
of hydrocarbons, or the receipt of proceeds therefrom, which taxes and
assessments became due and payable or accrued prior to the Engineering Date
and that are unpaid as of the Closing Date;
(iii) all undischarged liabilities and debt of Fremont and
Ridgepointe in existence as of the Closing Date;
(iv) all amounts paid by Amerac to discharge any liability or
debt of Fremont and/or Ridgepointe on or prior to the Closing Date;
(v) the amounts of all contingent compensation, severance, and
other distributions paid to the officers and employees of Fremont and
Ridgepointe as the result of the transactions contemplated in this
Agreement for which Fremont and/or Ridgepointe are responsible under
applicable agreements and that are not discharged in full prior to the
Closing;
(vi) reductions provided for in Sections 2.3, 2.4, 2.7, and 6.4;
and
(vii) any other amount provided for elsewhere in this Agreement
or otherwise agreed upon by the Selling Shareholders and Amerac.
(c) All adjustments to the Initial Cash Amount provided for in this
Agreement shall be calculated in accordance with generally accepted accounting
principles, consistently applied ("GAAP").
1.6 Preliminary Settlement Statement. Not less than three (3) Business
--------------------------------
Days prior to the Closing, the Selling Shareholders shall prepare and submit to
Amerac for review a draft settlement statement (the "Preliminary Settlement
Statement") that shall set forth each estimated adjustment to be made to the
Initial Cash Amount in accordance with Section 1.5 based upon information
available as of the date of preparation of such Preliminary Settlement
Statement, and calculate the preliminary Adjusted Purchase Consideration to be
paid at Closing. In addition, the Preliminary Settlement Statement shall also
set forth the amounts to be placed in escrow as the result of the existence of
any uncured Defects pursuant to Section 2.4, any unremediated Environmental
Claims pursuant to Section 2.3, and any unrepaired Casualty pursuant to Section
2.7, and the Evaluated Interests (as defined in Section 2.1(b)) affected thereby
(if any). The Preliminary Settlement Statement shall also contain a written
designation of the accounts into which the wire transfers of funds to each
Selling Shareholder provided for below in Section 1.10 are to be made.
1.7 Final Accounting. As soon as practicable following the Closing, but
----------------
no later than ninety (90) days thereafter, Amerac shall prepare and deliver to
the Selling Shareholders a final
5
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settlement statement which takes into account all final adjustments made to the
Initial Cash Amount and which calculates the final Adjusted Purchase
Consideration (the "Final Settlement Statement"). After taking into account
disbursements of any funds held in escrow pursuant to Sections 2.3, 2.4, or 2.7,
(a) if the final Adjusted Purchase Consideration reflected in the Final
Settlement Statement exceeds the preliminary Adjusted Purchase Consideration
reflected in the Preliminary Settlement Statement, Amerac shall pay any such
difference to the Selling Shareholders; and (b) if the final Adjusted Purchase
Consideration reflected on the Final Settlement Statement is less than the
preliminary Adjusted Purchase Consideration reflected in the Preliminary
Settlement Statement, the Selling Shareholders shall pay any such difference to
Amerac. All disbursements to and payments by the Selling Shareholders pursuant
to this Section 1.7 shall be made on the same proportionate basis as the amounts
paid under Section 1.10 below. If the Selling Shareholders and Amerac are
unable to agree on the Final Settlement Statement on or before thirty (30) days
after the receipt thereof by the Selling Shareholders, Amerac and the Selling
Shareholders shall submit all unresolved claims and amounts to arbitration in
accordance with the provisions of Section 2.8. Following the issuance of the
arbitrator's decision, Amerac and the Selling Shareholders shall pay each to the
other such amounts as are required to be paid, respectively, by such parties
under the terms of such arbitrator's decision.
1.8 No Registration; Legends. The issuance of the Amerac Shares in
------------------------
connection with the Purchase will not be registered under the Securities Act of
1933, as amended (the "1933 Act"), and thus such shares will be "restricted
securities" as such term is defined under Rule 144 under the 1933 Act. Each
certificate representing the Amerac Shares shall bear the legend set forth in
Exhibit C hereto with respect to such matters. In addition, at the Closing,
- ---------
Amerac and the Selling Shareholders shall execute a Registration Rights
Agreement in the form attached hereto as Exhibit J.
---------
1.9 Power of Attorney and Custody Agreement. Concurrently with the
---------------------------------------
execution of this Agreement, each Other Selling Shareholder and the Partnership
has placed certificates representing the shares of Ridgepointe Common Stock to
be sold by such Other Selling Shareholder and the Partnership pursuant to this
Agreement in custody, for delivery under this Agreement, under a Custody
Agreement made with Thomas O. Goldsworthy substantially in the form of Exhibit D
---------
hereto, and an Amended and Restated Power of Attorney appointing Thomas O.
Goldsworthy and V. Lee Powell as agents and attorneys-in-fact for such Other
Selling Shareholder and the Partnership. The form of the Amended and Restated
Power of Attorney is set forth in Exhibit E hereto.
---------
1.10 Closing. The closing of the Purchase contemplated hereby (the
-------
"Closing") shall be held at the offices of Jackson & Walker, L.L.P., 1100
Louisiana, Suite 4200, Houston, Texas 77002 at 10:00 a.m., Houston time, on
January 15, 1995, or at such other place or time as Amerac and the Selling
Shareholders may mutually agree. The date of the Closing is referred to herein
as the "Closing Date." Upon the terms and subject to the conditions of this
Agreement, at the Closing, each Selling Shareholder will deliver to Amerac
certificates representing the number of shares of the Purchased Stock set forth
opposite each such Selling Shareholder's name in Sections I and II of Schedule
--------
1.01, together with stock powers executed in blank, and Amerac shall pay to the
- ----
Selling Shareholders, in the proportions set out in Section
6
<PAGE>
III of Schedule 1.01, the preliminary Adjusted Purchase Consideration as
-------------
reflected in the Preliminary Settlement Statement. Amerac shall pay the cash
portion of such preliminary Adjusted Purchase Consideration to the Selling
Shareholders by bank wire transfer of immediately available funds from, first,
the funds constituting the Deposit that are not being held in escrow following
the Closing in accordance with Sections 2.3, 2.4, and 2.7, and, second, Amerac's
designated account at Bank. Each of the Selling Shareholders and Amerac shall
deliver such other documents and instruments, and shall take such other and
further actions, as are required under the terms of this Agreement in connection
with the consummation of the transactions contemplated herein.
1.11 Certification Under Treasury Regulations. At the Closing, each
----------------------------------------
Selling Shareholder will provide to Amerac a statement which satisfies the
requirements of Treas. Reg. (S) 1.1445-2(b)(2) certifying that such Selling
Shareholder is not a "foreign person."
1.12 Allocated Values. For purposes of this Agreement, with respect to
----------------
each Evaluated Interest, the term "Allocated Value" means the amount set forth
on Exhibit A under the column "Allocated Value" for such Evaluated Interest.
---------
The Selling Shareholders and Amerac agree and stipulate that the Allocated
Values set forth for the Evaluated Interests in Exhibit A have been established
---------
solely for use in calculating adjustments to the Initial Purchase Consideration
as provided herein, such schedule of Allocated Values being solely for the
convenience of the parties. The Selling Shareholders and Amerac do not intend
that such schedule of Allocated Values be treated or interpreted to constitute
an allocation of the Purchase Consideration among the Evaluated Interests for
federal or state income tax purposes.
ARTICLE II
DUE DILIGENCE EXAMINATION;
--------------------------
TITLE AND ENVIRONMENTAL MATTERS
-------------------------------
2.1 Principal Definitions. For purposes of this Agreement, the following
---------------------
expressions and terms shall have the indicated meanings, unless expressly
indicated otherwise herein:
(a) "Applicable Contracts" means all of the assignments or other
--------------------
instruments or agreements that pertain to the Oil and Gas Properties and all
contractually binding arrangements to which the Oil and Gas Properties may be
subject and which will be binding on the Oil and Gas Properties or Amerac after
the Closing, including, without limitation: production payment assignments; net
profits interest assignments; farmin and farmout agreements; bottom-hole
agreements; crude oil, condensate, and natural gas purchase and sale, exchange,
gathering, transportation, and marketing agreements; hydrocarbon storage
agreements; acreage contribution agreements; operating agreements; hydrocarbon
balancing agreements; pooling agreements; unitization agreements; processing
agreements; saltwater disposal agreements; options; permits; licenses,
servitudes; easements; rights-of-way; orders; facilities or equipment leases;
and other contracts, agreements, and rights owned by Fremont, in whole or in
part, to the extent that they are (i) appurtenant to or affect the Oil and Gas
Properties or (ii) used or held for use in connection with the ownership or
operation of the Oil and Gas Properties or the production or
7
<PAGE>
treatment of hydrocarbons on or produced therefrom, or the sale or disposal of
water, hydrocarbons, or associated substances.
(b) "Evaluated Interests" means those oil and/or gas wells, oil and
-------------------
gas leases, units, or other property interests included in the Oil and Gas
Properties which are separately identified in Exhibit A hereto and each of which
---------
is associated with a separate Allocated Value thereon.
(c) "Environmental Claim" means (i) any event or condition with
-------------------
respect to air, land, soil, surface, subsurface strata, surface water, ground
water, or sediments which causes an Oil and Gas Property to become subject to
remediation under, or not be in compliance with, any Environmental Law,
Environmental Permit (as defined below in Section 3.27(a)), oil and gas lease,
or Applicable Contract, (ii) any spilling, leaking, pouring, emitting, emptying,
discharging, injection, escaping, transmission, leaching, or dumping
("Release"), or threat of a Release, of Environmental Contaminants on, to, or
from an Oil and Gas Property that results, or may result, in liability to any
third party for injury to or death of any person, persons, or other living
thing, or damage, loss, or destruction of property, (iii) any event or condition
described in the preceding clauses (i) and (ii) of this Section 2.1(c) that
otherwise results in a breach by any Selling Shareholder of any of the
warranties contained in Section 3.27, and (iv) any written or oral complaint,
notice, citation, claim, demand, action, suit, administrative proceeding, order,
judgment, liability, or obligation of any kind or character, whether putative,
threatened, or actual, asserted or assertable by, issued by, or running in favor
of any third party or governmental body caused by, arising out of, resulting
from, or related in any way to any event or conditions described in the
preceding clauses (i), (ii), or (iii) of this Section 2.1(c).
(d) "Environmental Contaminants" means "hazardous substances,"
--------------------------
"pollutants or contaminants," and "petroleum, including any fraction thereof,
and natural gas, liquid natural gas, or synthetic gas of pipeline quality" as
those terms are defined or used in Section 101 of the Comprehensive
Environmental Response, Compensation and Liability Act. The term also includes
naturally occurring radioactive material ("NORM") concentrated or disposed of in
association with oil and gas activities.
(e) "Environmental Laws" means all applicable federal, state, and
------------------
local laws, including statutes, regulations, orders, ordinances, and common law,
relating to the protection of the public health, welfare, and the environment,
including, without limitation, those laws relating to the storage, handling, and
use of chemicals and other hazardous materials, those relating to the
generation, processing, treatment, storage, transportation, disposal, or other
management of waste materials of any kind, and those relating to the protection
of environmentally sensitive areas.
(f) "Good and Marketable Title" means, with respect to each Evaluated
-------------------------
Interest, that title of Fremont which:
(i) entitles Fremont, throughout the duration of the relevant
Evaluated Interest, to receive from such Evaluated Interest not less than the
interest shown on Exhibit A as the "Net Revenue Interest" of all hydrocarbons
---------
produced, saved, and marketed from the
8
<PAGE>
relevant Evaluated Interest, all without reduction, suspension, or termination
of such Evaluated Interest;
(ii) obligates Fremont to bear the percentage of the costs and
expenses relating to the maintenance and development of, and operations relating
to, the relevant Evaluated Interest not greater than the "Working Interest"
shown on Exhibit A without increase throughout the duration of such Evaluated
---------
Interest; and
(iii) except for Permitted Encumbrances, is free and clear of
Liens (as defined in Section 3.5(b)).
(g) "Oil and Gas Properties" means (a) all of the interests in and to
----------------------
the oil, gas, and mineral leases, properties, rights, and interests that are
owned by Fremont and entitle Fremont to the undivided interests identified in
Exhibit A hereto as "Working Interests" and "Net Revenue Interests" in and to
- ---------
the Evaluated Interests and all oil, gas, and other hydrocarbons produced
therefrom or allocated thereto, as well as all other fee interests, leasehold
interests, royalty interests, overriding royalty interests, production payments,
net profits interests, carried interests, reversionary interests, possibilities
of reverter, conversion rights and options, contractual rights to production,
contractual rights providing for the acquisition or earning of any such
interests, and all other interests of any kind or character; (b) all of
Fremont's rights, titles, and interests in, to, and under the Applicable
Contracts; and (c) all of Fremont's rights, titles, and interests in and to all
equipment, machinery, fixtures, and other real, personal, and mixed property
located on such oil and gas leases, properties, and wells, or appurtenant
thereto, or used or obtained in connection therewith or with the production,
storage, treatment, transportation, processing, sale, or disposal of
hydrocarbons or other substances produced from or attributable to such oil and
gas leases, properties, and wells.
(h) "Permitted Encumbrances" means:
----------------------
(i) lessor's royalties, non-participating royalties, overriding
royalties, and division orders and sales contracts containing customary terms
and provisions covering oil, gas or associated liquified or gaseous
hydrocarbons, reversionary interests, and similar burdens if the net cumulative
effect of such burdens does not operate to reduce the net revenue interest of
Fremont in any Evaluated Interest to an amount less than the "Net Revenue
Interest" set forth on Exhibit A;
---------
(ii) preferential rights to purchase and required third party
consents to assignments and similar agreements with respect to which, prior to
Closing, (A) waivers or consents are obtained from the appropriate parties, (B)
the appropriate time period for asserting such rights has expired without an
exercise of such rights, or (C) arrangements can be made by Amerac and Fremont
to allow Amerac to receive substantially the same economic benefits as if all
such waivers and consents to assign had been obtained;
(iii) liens for taxes or assessments not yet due or delinquent
or, if delinquent, that are being contested in good faith in the normal course
of business;
9
<PAGE>
(iv) all rights to consent by, required notices to, filings with,
or other actions by governmental entities in connection with the sale or
conveyance of oil and gas leases or interests therein, if the same are
customarily obtained subsequent to such sale or conveyance and Amerac has no
reason to believe they cannot be obtained;
(v) conventional rights of reassignment requiring less than
ninety (90) days notice to the holders of such rights;
(vi) such Defects as Amerac may have waived;
(vii) rights reserved to or vested in any municipality or
governmental, statutory, or public authority (A) to contract or regulate any
Evaluated Interest in any manner, and all applicable laws, rules, and orders of
governmental authority; (B) by the terms of any right, power, franchise, grant,
license, or permit, or by any provision of law, to terminate such right, power,
franchise grant, license, or permit or to purchase, condemn, expropriate, or
recapture or to designate a purchaser of any of the Evaluated Interests; (C) to
control or regulate any of the Evaluated Interests (or material portions
thereof) or to use such property in a manner which does not materially impair
the use of such property for the purposes for which it will be held by Amerac;
and (iv) any obligations or duties affecting the Evaluated Interests (or
material portions thereof) to any municipality or governmental, statutory, or
public authority with respect to any franchise, grant, license, or permit;
(viii) rights of a common owner of any interest in rights-of-way
or easements currently held by Fremont and such common owner as tenants in
common or through common ownership;
(ix) easements, conditions, covenants, restrictions, servitudes,
permits, rights-of-way, surface leases and other rights in the Evaluated
Interests for the purpose of surface operations, roads, alleys, highways,
railways, pipelines, transmission lines, transportation lines, distribution
lines, power lines, telephone lines, and removal of timber, grazing, logging
operations, canals, ditches, reservoirs, and other like purposes, or for the
joint or common use of real estate, rights-of-way, facilities, and equipment
which do not materially impair the rights held by Amerac;
(x) zoning, planning and environmental laws and ordinances and
municipal regulations;
(xi) vendors, carriers, warehousemen's, repairmen's, mechanics',
workmen's, materialmen's, construction, or other like liens arising by operation
of law in the ordinary course of business or incident to the construction or
improvement of any property in respect of obligations which are not yet due or
which are being contested in good faith by appropriate proceedings by or on
behalf of Fremont;
(xii) Liens created under operating agreements in respect of
obligations that are not yet due or that are being contested in good faith by
appropriate proceedings by or on behalf of Fremont; and
10
<PAGE>
(xiii) all other Liens, charges, encumbrances, contracts,
agreements, instruments, obligations, defects, and irregularities affecting the
Evaluated Interests relating to obligations not yet in default, which
individually or in the aggregate are not such as to interfere materially with
the operation, value, or use of any Evaluated Interest, do not materially
prevent Amerac from receiving the proceeds of production from any Evaluated
Interest, do not reduce the net revenue interest of Fremont in any Evaluated
Interest to less than the "Net Revenue Interest" set forth for such Evaluated
Interest on Exhibit A and do not obligate Fremont to bear costs and expenses
relating to the maintenance, development, and operation of any Evaluated
Interest in any amount greater than the "Working Interest" set forth for such
Evaluated Interest on Exhibit A (unless the actual net revenue interest of
Fremont in such Evaluated Interest is greater than the "Net Revenue Interest"
set forth therefor on Exhibit A in the same proportion as any increase in such
"Working Interest").
2.2 Access. Through the Closing Date, the Selling Shareholders shall
------
cause Fremont and Ridgepointe to give Amerac and its representatives (including
Amerac's employees, consultants, independent contractors, attorneys,
accountants, and other advisors) full access during normal business hours to all
of the offices, personnel, books, files, records, contracts, correspondence,
computer output, data files (to the extent Fremont and/or Ridgepointe have the
right to make the same available), maps, reports, plats, and other documents of
Fremont and Ridgepointe, or to which Fremont or Ridgepointe have access,
pertaining to any of their respective properties and assets, including, without
limitation, all abstracts of title, title opinions, title curative materials,
lease files, contract files, division order files, operations records,
environmental records, production records, facility and well files and records,
regulatory agency files, hydrocarbon marketing files, accounting records
(including, without limitation, records relating to gas imbalances and suspense
items), geological, geophysical, and other scientific and technical data and
information, and other information, data, records, and files which Fremont
and/or Ridgepointe may have (or have access to) relating in any way to the Oil
and Gas Properties and the other properties and assets of such parties, the past
or present operation thereof, and the marketing of hydrocarbon production
therefrom. Amerac shall have the right to photocopy such materials at Amerac's
expense. If Amerac requests information not in the possession of Fremont and/or
Ridgepointe, the Selling Shareholders shall cause Fremont or Ridgepointe, as
applicable, to use all reasonable efforts to obtain the requested information
from the applicable operators and other third parties. Through the Closing
Date, the Selling Shareholders shall also cause Fremont and Ridgepointe to
afford Amerac and its authorized representatives reasonable access to and entry
upon all of the Oil and Gas Properties and all of such parties' other properties
and assets for the purposes of operational inspections and reasonable access to
any employees or contract personnel that have been involved with the operation,
maintenance, or development of the Oil and Gas Properties and other properties
and assets and the accounting or supervision thereof.
2.3 Environmental Assessments and Defects.
-------------------------------------
(a) Through the Closing Date, Amerac shall have the right to enter
upon and make environmental assessments of the Oil and Gas Properties, including
the performance of soil and water tests and such other tests, examinations,
investigations, and studies as may be necessary or appropriate for the
preparation of engineering and other reports relating to the Oil
11
<PAGE>
and Gas Properties, their condition, and the presence of Environmental
Contaminants thereon. As of the date of this Agreement, Amerac represents that
it is not aware of any Environmental Claims except as set forth in Schedule
--------
2.3(a). In addition, the Selling Shareholders and Amerac agree promptly to
- ------
notify each other, as applicable, of any Environmental Claim arising after the
date of this Agreement and discovered by Amerac, Fremont, Ridgepointe, or the
Selling Shareholders, as applicable, prior to Closing. The Selling Shareholders
and Amerac shall attempt, in good faith, to agree upon the methods of
remediating all such Environmental Claims and the estimates of the costs of such
remediations; provided, however, that except as otherwise indicated on Schedule
--------
2.3(a), Amerac and the Selling Shareholders have agreed upon the estimate of the
- ------
Environmental Claims reflected on Schedule 2.3(a), the methods of remediating
---------------
such Environmental Claims, and the estimates of the total costs of such
remediations also set forth on Schedule 2.3(a).
---------------
(b) If the Selling Shareholders and Amerac agree upon the existence of
an Environmental Claim, the method of remediating the same, and the estimate of
the cost of such remediation, then subject to the succeeding provisions of this
Section 2.3, Amerac shall be entitled to receive a reduction in the Initial
Purchase Consideration equal to the lesser of (i) the agreed upon estimate of
the cost of remediating such Environmental Claim, net to the interest of Fremont
in the Evaluated Interests affected by such Environmental Claim, or (ii) ten
percent (10%) of the aggregate Allocated Values of the Evaluated Interests
affected thereby; provided, however, that if the agreed upon estimate of the
cost to remediate the relevant Environmental Claim (net to the interest of
Fremont in the affected Evaluated Interest) is, in the aggregate, greater than
the aggregate Allocated Values of the Evaluated Interests affected thereby, and
the Selling Shareholders elect not to remediate such Environmental Claim as
provided hereinafter, Amerac shall be entitled to cause Fremont to convey to
FPC, prior to the Closing, the Evaluated Interests affected by such
Environmental Claim and to receive a reduction in the Initial Purchase
Consideration equal to the aggregate Allocated Values of the Evaluated Interests
thus conveyed. Notwithstanding the provisions of the immediately preceding
sentence of this Section 2.3(b) to the contrary, however, the Selling
Shareholders shall, in all events, also have the right, but in no event shall
the Selling Shareholders be obligated, to remediate such an Environmental Claim
at their sole cost, risk, liability, and expense in accordance with applicable
Environmental Laws. If the Selling Shareholders elect to remediate an
Environmental Claim, the Selling Shareholders shall promptly notify Amerac of
that fact. If the Selling Shareholders complete such remediation prior to the
Closing Date, the Selling Shareholders shall have no further liability to Amerac
with respect to such Environmental Claim. If the Selling Shareholders do not
complete the remediation of the relevant Environmental Claim on or prior to the
Closing Date, Amerac shall instruct Bank to retain in escrow, in accordance with
the provisions of the Escrow Agreement, a portion of the Deposit equal to the
lesser of (A) the agreed upon estimate of the cost (net to the interest of
Fremont in the affected Evaluated Interest) of remediating such Environmental
Claim, or (B) ten percent (10%) of the aggregate Allocated Values of the
Evaluated Interests affected thereby; and the amount thus retained in escrow
shall be deducted from the preliminary Adjusted Purchase Consideration paid at
the Closing. The Selling Shareholders shall have sixty (60) days after the
Closing Date within which to complete the remediation of such Environmental
Claim in accordance with applicable Environmental Laws. If the Selling
Shareholders do not complete the remediation of the relevant Environmental Claim
on or before the expiration of such sixty-day period, Amerac may elect: (i) to
offer the Selling Shareholders
12
<PAGE>
an extension of time within which to complete such remediation; or (ii) to
receive a reduction in the final Adjusted Purchase Consideration equal to the
lesser of (A) the estimated cost (net to the interest of Fremont in the affected
Evaluated Interest) to remediate such Environmental Claim originally agreed upon
by the Selling Shareholders and Amerac, or (B) ten percent (10%) of the
aggregate Allocated Values of the Evaluated Interests affected thereby;
provided, however, that if the agreed upon estimate of the cost (net to the
interest of Fremont in the affected Evaluated Interest) to remediate the
relevant Environmental Claim is, in the aggregate, greater than the aggregate
Allocated Values of the Evaluated Interests affected thereby, Amerac shall be
entitled to cause Fremont to convey to FPC all of the right, title, and interest
of Fremont in and to the affected Evaluated Interests, and to receive a
reduction in the Initial Purchase Consideration equal to the aggregate Allocated
Values of the Evaluated Interests thus conveyed. In the latter event, the
Selling Shareholders and Amerac shall cause Bank to distribute to Amerac all
amounts held in escrow with respect to such Environmental Claim, together with
all interest earned thereon.
(c) If the Selling Shareholders and Amerac are unable to agree, after
meeting in good faith, on either the existence of an Environmental Claim, the
method of remediating the same, or an estimate of the cost of such remediation,
Amerac may elect to waive such asserted Environmental Claim. If Amerac does not
waive the asserted Environmental Claim, the Selling Shareholders and Amerac
shall submit such disagreement to arbitration in accordance with the procedures
set forth in Section 2.8. If the decision of the arbitrator is not rendered
prior to the Closing Date, Amerac shall instruct the escrow agent to retain in
escrow, in accordance with the provisions of the Escrow Agreement, a portion of
the Deposit equal to the Allocated Value of each Evaluated Interest affected by
such Environmental Claim, and the amount thus retained in escrow shall be
deducted from the preliminary Adjusted Purchase Consideration paid at the
Closing. If such a dispute is submitted to arbitration, Amerac and the Selling
Shareholders, or either of them, shall provide to Bank written notice of such
fact that identifies the nature of the dispute and the arbitrator selected and
that instructs Bank to disburse the funds held in escrow with respect to the
relevant Environmental Claim, and all accrued interest thereon, in accordance
with instructions to be delivered to Bank by the arbitrator following the
issuance of the arbitrator's decision. Any such notice delivered unilaterally
by Amerac or the Selling Shareholders shall also be delivered to the other
party, and proof of the delivery of such notice shall be provided to Bank. If
the arbitrator determines that the Environmental Claim asserted by Amerac does,
in fact, exist, and that the estimate of the costs to remediate such
Environmental Claim submitted by Amerac is appropriate with respect thereto, the
arbitrator shall resolve such Environmental Claim and cause the funds held in
escrow in connection therewith to be disbursed in accordance with the provisions
of Section 2.3(b). If the arbitrator renders a decision that is adverse, in
whole or in part, to Amerac with respect to an asserted Environmental Claim, the
funds held in escrow in connection with such asserted Environmental Claim shall
be disbursed in accordance with the decision of the arbitrator. All amounts
distributed from the escrow account pursuant to this Section 2.3(c) will include
a pro rata share of the interest earned on such amounts. In all events, if the
arbitrator determines that the estimated cost (net to the interest of Fremont in
the affected Evaluated Interest) to remediate an asserted Environmental Claim is
greater than the aggregate Allocated Values of the Evaluated Interests affected
thereby, Amerac shall also be entitled to cause Fremont to convey to FPC all of
the right, title, and interest of Fremont in and to the affected Evaluated
Interests, and to
13
<PAGE>
receive a reduction in the Adjusted Purchase Consideration equal to the
aggregate Allocated Values of the Evaluated Interests thus conveyed.
2.4 Defects and Related Adjustments.
-------------------------------
(a) From time to time on or before the Closing Date, but in no event
later than 5:00 p.m., Central Standard Time, on the seventh (7th) day prior to
the Closing Date, Amerac may give the Selling Shareholders written notice of any
claimed Defect ("Defect Notice"). Each such Defect Notice shall set forth (i) a
brief description of the matter constituting the claimed Defect and, if
applicable, the Evaluated Interest affected thereby, and (ii) the estimated
Defect Amount calculated in good faith by Amerac in accordance with Section
2.4(e) and attributable to the claimed Defect. For purposes of this Agreement,
the term "Defect" means (i) any Lien, contract, agreement, obligation, or defect
of title that would cause title to a material Evaluated Interest identified with
an asterisk on Exhibit A not to be Good and Marketable Title, and (ii) any
---------
defect or matter that would cause a breach of a representation or warranty of
the Selling Shareholders hereunder, other than the warranties contained in
Sections 3.20(a) and 3.27; provided, however, that Amerac shall not be entitled
to assert Defects pertaining to title if the relevant Defect (x) constitutes an
objection to title for which a curative requirement is inappropriate under the
standards applicable to title examiners prescribed by the State Bars of Oklahoma
or Kansas, as applicable, (y) does not relate directly to the interest of
Fremont in the relevant Evaluated Interest, or (z) otherwise relates to a matter
as to which curative requirements are routinely made by experienced oil and gas
title examiners (i.e., the acquisition of affidavits of use, possession, and
non-production) but as to which no putative or actual controversy or claim is
reflected in the public record or the books and records of Fremont or the
Selling Shareholders.
(b) The Selling Shareholders and Amerac shall endeavor in good faith
to agree upon the existence of the Defects claimed by Amerac and the Defect
Amounts applicable thereto. To the extent that the Selling Shareholders and
Amerac agree upon the existence of a Defect and the applicable Defect Amount,
the Selling Shareholders shall have the right, but in no event shall the Selling
Shareholders be obligated, to cure or remove to the reasonable satisfaction of
Amerac all such Defects at their sole cost, risk, and expense. If the Selling
Shareholders elect to cure or remove a Defect, the Selling Shareholders shall
promptly notify Amerac of such fact. If any such Defect is cured or removed to
the reasonable satisfaction of Amerac or a mutually agreeable reduction of the
Initial Purchase Consideration has been made for such Defect prior to the
Closing, the Selling Shareholders shall have no further liability to Amerac with
respect thereto.
(c) If the Selling Shareholders and Amerac do not agree upon the
existence of a Defect and/or the Defect Amount applicable thereto prior to the
Closing, the Selling Shareholders and Amerac shall submit such disputes to
arbitration in accordance with the procedures set forth below in Section 2.8.
To facilitate the resolution of any such dispute, Amerac will instruct Bank to
retain in escrow, in accordance with the provisions of the Escrow Agreement, a
portion of the Deposit equal to the Defect Amount calculated by Amerac with
respect to the relevant Defect, and the amount thus retained in escrow shall be
deducted from the Adjusted Purchase Consideration paid at the Closing. If such
a dispute is submitted to
14
<PAGE>
arbitration, Amerac and the Selling Shareholders, or either of them, shall
provide to Bank written notice of such fact that identifies the nature of the
dispute and the arbitrator selected and that instructs Bank to disburse the
funds held in escrow with respect to the asserted Defect in accordance with
instructions to be delivered to Bank by the arbitrator following the issuance of
the arbitrator's decision. Any such notice delivered unilaterally by Amerac or
the Selling Shareholders shall also be delivered to the other party, and proof
of the delivery of such notice shall be provided to Bank. If the arbitrator
determines that the Defect asserted by Amerac does, in fact, exist, and that the
Defect Amount calculated by Amerac is appropriate with respect thereto, the
arbitrator shall resolve the asserted Defect and cause the funds held in escrow
in connection therewith to be disbursed in accordance with the provisions of
Section 2.4(d). If the arbitrator renders a decision that is adverse, in whole
or in part, to Amerac with respect to a Defect, the disputed Defect Amount shall
be disbursed in each case in accordance with the decision of the arbitrator.
All amounts distributed from the escrow account pursuant to this Section 2.4(c)
shall include a pro rata share of the interest earned on such amounts.
(d) If the Selling Shareholders and Amerac agree upon the existence of
a Defect and the Defect Amount applicable thereto prior to the Closing, and
either the Selling Shareholders elect not to attempt to cure or remove the
relevant Defect or the Selling Shareholders and Amerac agree that such Defect
cannot or should not be cured, Amerac shall receive a reduction in the Adjusted
Purchase Consideration paid at the Closing equal to the Defect Amount agreed
upon by the Selling Shareholders and Amerac. If the Selling Shareholders and
Amerac agree upon the existence of a Defect and the Defect Amount applicable
thereto prior to the Closing, and the Selling Shareholders elect to attempt to
cure such Defect, but the Selling Shareholders are unable to cure such Defect
prior to the Closing, the Selling Shareholders shall provide to Amerac prompt
written notice of such fact. At the Closing, Amerac shall instruct Bank to
retain in escrow, in accordance with the provisions of the Escrow Agreement, a
portion of the Deposit equal to the aggregate estimated Defect Amounts for all
such Defects that have not been cured or otherwise agreed upon by Amerac and the
Selling Shareholders, and such amount retained in escrow shall be deducted from
the preliminary Adjusted Purchase Consideration paid at the Closing. The
Selling Shareholders shall have sixty (60) days after the Closing Date within
which to cure or remove to the reasonable satisfaction of Amerac all such
Defects not cured or removed to the reasonable satisfaction of Amerac prior to
the Closing. With respect to those Defects cured or removed to the reasonable
satisfaction of Amerac or as to which the Selling Shareholders and Amerac
otherwise agree on or before the expiration of such sixty-day period, the
Selling Shareholders and Amerac shall deliver to Bank written notice instructing
Bank promptly to disburse to the Selling Shareholders the relevant Defect
Amounts, or portions thereof, attributable to the Defects so cured or removed,
and the Selling Shareholders shall have no further liability to Amerac with
respect thereto. If, at the expiration of such sixty-day period, there remain
any Defects that have not been cured or removed to the reasonable satisfaction
of Amerac or otherwise agreed upon by the Selling Shareholders and Amerac,
Amerac may elect: (i) to offer the Selling Shareholders an extension of time
within which to complete such curative or remedial actions; or (ii) to receive a
reduction in the final Adjusted Purchase Consideration equal to the Defect
Amounts applicable to the relevant Defects. In that event, the Selling
Shareholders and Amerac shall deliver to Bank written notice instructing Bank to
disburse to Amerac the Defect Amounts applicable to such
15
<PAGE>
Defects. All amounts distributed from the escrow account pursuant to this
Section 2.4(d) will include a pro rata share of the interest earned on such
amounts.
(e) "Defect Amount" shall be determined as follows: (i) if the Defect
affects all of Fremont's interest in an Evaluated Interest, such that the Defect
results in a complete failure of title with respect thereto, the Defect Amount
shall be the full Allocated Value for the relevant Evaluated Interest; (ii) if
the Defect is a Lien that is uncontested and liquidated in amount, then the
Defect Amount shall be an amount equal to the sum necessary to be paid to the
obligee to remove the Lien; (iii) if the Defect results from a deficiency in
Fremont's actual net revenue interest in an Evaluated Interest relative to that
shown for the affected Evaluated Interest on Exhibit A and on which the
---------
Allocated Value of such Evaluated Interest is based, the Defect Amount will be
the difference between the Allocated Value for the affected Evaluated Interest
and an amount determined by multiplying such Allocated Value by the ratio of the
actual net revenue interest of Fremont to the Net Revenue Interest set forth for
such Evaluated Interest on Exhibit A; (iv) if the Defect results from Fremont's
---------
actual working interest in an Evaluated Interest being greater than that shown
for the affected Evaluated Interest on Exhibit A and on which the Allocated
---------
Value of such Evaluated Interest is based, and such larger working interest is
not accompanied by a corresponding proportionate increase in Fremont's net
revenue interest in such Evaluated Interest, the Defect Amount will be the
difference between the Allocated Value for the affected Evaluated Interest set
forth on Exhibit A and a recalculated Allocated Value for such Evaluated
---------
Interest using the same production rates, price forecasts, and discount factors
used by Amerac to calculate the original Allocated Value, adjusted to account
for the diminution in the net present value of the future cash flows that
results from the higher working interest; and (v) if the Defect is one other
than the Defects described above in clauses (i), (ii), (iii), and (iv) of this
Section 2.4(e), the Defect Amount shall be an amount determined in good faith by
the mutual agreement of Amerac and the Selling Shareholders, taking into
account, as applicable, the Allocated Value of the relevant Evaluated Interest,
the legal effect of the Defect, and the potential economic effect of the Defect
over the life of the relevant Evaluated Interest or otherwise with respect to
the transactions contemplated herein. In no event shall the Defect Amount
established under this Agreement for a Defect pertaining to an Evaluated
Interest exceed the Allocated Value for such Evaluated Interest.
2.5 Preferential Purchase Rights and Consents to Assign.
---------------------------------------------------
(a) With respect to each preferential purchase right pertaining to an
Evaluated Interest that is triggered by the transactions contemplated in this
Agreement, the Selling Shareholders shall cause Fremont, prior to the Closing,
to send to the holder of each such right a notice offering to sell to such
holder, in accordance with the contractual provisions applicable to such right,
the Evaluated Interest covered by such right on substantially the same terms as
are set forth herein and for the Allocated Value of such Evaluated Interest set
forth on Exhibit A, subject to adjustments and all other terms and provisions of
---------
this Agreement. In addition, prior to the Closing, the Selling Shareholders
shall cause Fremont to send to each holder of a right to consent to assignment
pertaining to an Evaluated Interest which is triggered by the transactions
contemplated in this Agreement a notice seeking such party's consent to such
transactions. Simultaneously therewith, the Selling Shareholders shall cause
Fremont to deliver a copy of such notices to Amerac.
16
<PAGE>
(b) If, prior to the Closing, any holder of such a preferential
purchase right notifies Fremont or the Selling Shareholders that it intends to
consummate the purchase of the Evaluated Interest to which its preferential
purchase right applies, the exercise of such preferential purchase right shall
constitute a Defect, and the Initial Purchase Consideration shall be reduced by
the Allocated Value of the relevant Evaluated Interest. The Selling
Shareholders shall be entitled to all proceeds paid by a party exercising such a
preferential purchase right prior to the Closing. If the holder of such a
preferential purchase right fails to consummate the purchase of the Evaluated
Interest affected by such right on or prior to the Closing Date, then the
Selling Shareholders shall so notify Amerac and, subject to Amerac's
satisfaction that such preferential right has been waived, the Defect resulting
from the proposed exercise of such preferential right shall be deemed to have
been cured. If a preferential purchase right burdening an Evaluated Interest is
exercised after the Closing Date, such exercise shall not constitute a Defect,
and Amerac shall be entitled to all proceeds paid for the affected Evaluated
Interest by the party exercising the preferential purchase right.
(c) There shall be no reduction in the Initial Purchase Consideration
with respect to Evaluated Interests for which preferential purchase rights have
been waived, or as to which the period to exercise such right has expired prior
to the Closing.
(d) With respect to any portion of an Evaluated Interest as to which a
required consent has not been obtained prior to the Closing, such failure shall
constitute a Defect affecting the relevant Evaluated Interest, and the Selling
Shareholders and Amerac shall have the rights and remedies provided herein with
respect thereto.
2.6 Interest Additions. The Selling Shareholders shall be entitled to an
------------------
increase in the Initial Purchase Consideration with respect to any additional
interest in or with respect to any material Evaluated Interest identified with
an asterisk on Exhibit A that is reflected of record and as to which Fremont has
---------
Good and Marketable Title, the net effect of which is either (a) to increase
permanently Fremont's net revenue interest in the affected Evaluated Interest
above that shown for such Evaluated Interest on Exhibit A, or (b) to decrease
---------
Fremont's working interest for the relevant Evaluated Interest below that shown
for such Evaluated Interest on Exhibit A without a corresponding decrease in the
---------
"Net Revenue Interest" shown for such Evaluated Interest on Exhibit A; provided,
---------
however, that the Selling Shareholders shall not be entitled to such an increase
in the Initial Purchase Consideration in the case of additional interests
resulting from Fremont's failure to execute and deliver to FEI or other
affiliates of the Selling Shareholders recorded assignments of overriding
royalty interests in production from one (1) or more of such material Evaluated
Interests owed to such parties under existing intercompany arrangements between
Fremont and such parties. To be entitled to such an adjustment in the Initial
Purchase Consideration, the Selling Shareholders shall furnish to Amerac written
notice of any such additional interests no later than 5:00 p.m., Central
Standard Time, on the seventh (7th) day prior to the Closing Date. Such notice
shall set forth the increase in interest asserted by the Selling Shareholders
and the Evaluated Interest affected thereby. If Amerac is able to verify to its
reasonable satisfaction the existence of any such additional interest based upon
record title examinations or other title-related due diligence conducted by
Amerac in connection with this Agreement, the Initial Purchase Consideration
shall be adjusted by increasing the Initial Cash Amount by an amount equal to
the value of such additional interest. Such value shall be
17
<PAGE>
determined consistently with the manner in which reductions to the Initial
Purchase Consideration are determined under Section 2.4. If the Selling
Shareholders and Amerac are unable to agree on the existence or value of such an
additional interest, the Selling Shareholders and Amerac shall submit such
dispute to arbitration in accordance with the procedures set forth in Section
2.8. Upon the arbitrator's determination of the existence of the asserted
additional interest and its value, the value of such additional interest as
determined by the arbitrator shall be credited to the Selling Shareholders and
taken into account in the calculation of the final Adjusted Purchase
consideration reflected in the Final Settlement Statement.
2.7 Casualty Loss. The Selling Shareholders shall give Amerac prompt
-------------
written notice of any fire, explosion, accident, blowout, earthquake, act of the
public enemy, act of God, or other similar casualty event ("Casualty") that
occurs with respect to any Evaluated Interest prior to the Closing Date,
together with a description of the applicable insurance coverage and the extent
of Fremont's exposure as the result of such Casualty. For purposes of this
Agreement, any such Casualty shall be treated in the same manner as an
Environmental Claim, with the result that the rights and obligations of the
Selling Shareholders and Amerac shall be governed by the provisions of Section
2.3(b) and Section 2.3(c).
2.8 Arbitration.
-----------
(a) Any disagreement, difference, or dispute among the parties that is
provided in this Agreement to be resolved pursuant to arbitration shall be
resolved according to the procedures set forth in this Section 2.8. ALL OTHER
DISAGREEMENTS, DIFFERENCES, OR DISPUTES ARISING BETWEEN THE SELLING SHAREHOLDERS
AND AMERAC UNDER THE TERMS OF THIS AGREEMENT SHALL NOT BE SUBJECT TO ARBITRATION
AND SHALL BE DETERMINED BY A COURT OF COMPETENT JURISDICTION, UNLESS THE SELLING
SHAREHOLDERS AND AMERAC OTHERWISE MUTUALLY AGREE. For purposes of this
Agreement, the term "court of competent jurisdiction" shall not include justice
of the peace courts in the State of Texas. If the parties determine that
arbitration is necessary under any provision hereof that calls for the
arbitration of disputes, then no later than five (5) days after the Selling
Shareholders and Amerac have confirmed to each other in writing their intentions
to arbitrate the relevant dispute, the Selling Shareholders shall select an
arbitrator, and Amerac shall select an arbitrator. Promptly following their
selection, the arbitrators selected by, respectively, the Selling Shareholders
and Amerac jointly shall select a third arbitrator, who shall hear and decide
all matters relating to the dispute that is subject to arbitration under this
Agreement. All arbitrators selected under this Agreement shall be experts with
respect to oil and gas, environmental, operations, land, legal, or accounting
issues, as applicable, and in each case shall have at least ten (10) years
experience in the oil and gas industry. If any arbitrator selected under this
Section 2.8 (a) should die, resign, or otherwise be unable to perform his duties
hereunder, a successor arbitrator shall be selected pursuant to the procedures
set forth in this Section 2.8(a).
(b) The arbitrator shall settle all disputes in accordance with the
Federal Arbitration Act and the Rules of the American Arbitration Association,
to the extent that such Rules do not conflict with the terms of such Act or the
provisions of this Agreement. The decision of the arbitrator shall be binding
on the parties and, if necessary, may be enforced in
18
<PAGE>
any court of competent jurisdiction. The law governing all such disputes shall
be the laws of the State of Texas without regard to conflicts of laws
principles; provided, however, that with respect to disputes relating to Defects
as to title or Environmental Claims relating to alleged violations of local
Environmental Laws, the law governing such dispute shall be the laws of the
state in which the affected Evaluated Interest is located, without regard to
conflicts of laws principles. The charges and expenses of the arbitrator shall
be shared equally by the Selling Shareholders and Amerac.
(c) Any arbitration hearing shall be held in Houston, Harris County,
Texas. The arbitration hearing shall commence as soon as is practical, but in
no event more than thirty (30) days, after the selection of the arbitrator. At
such a hearing, the Selling Shareholders and Amerac shall each have up to five
(5) days within which to present their respective positions on the issues being
arbitrated. In fulfilling his duties, the arbitrator shall be bound by the
terms and provisions of this Agreement, but may also consider such other matters
as, in the opinion of the arbitrator, are necessary or helpful to make a proper
determination. In addition, the arbitrator may consult with and engage, with
the approval and at the joint expense of the Selling Shareholders and Amerac,
disinterested third parties (including, without limitation, petroleum engineers
and consultants) to advise the arbitrator. The arbitrator shall issue his final
determination of all issues no later than ten (10) days after the conclusion of
the arbitration hearing. If the matter in dispute relates to whether one (1) or
more of the conditions to the obligation of either the Selling Shareholders or
Amerac, as applicable, to close the transactions contemplated herein has been
satisfied, the relevant condition shall be suspended, and the party entitled to
enforce such condition shall not be entitled to terminate this Agreement
pursuant to Section 10.1 solely because such condition remains unsatisfied. In
that event, the Closing Date shall be extended to the next Business Day
following the issuance by the arbitrator of his final determination, at which
time the suspension of such condition shall cease, and the Closing shall take
place unless this Agreement is terminated at that time by either party having a
right to do so pursuant to Article X.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
------------------------------
OF SELLING SHAREHOLDERS
-----------------------
Each Selling Shareholder (or, when indicated, one or more individual
Selling Shareholders) represents and warrants, severally only and not jointly,
with respect to itself, its own acts or omissions, and its ownership interest in
Fremont and Ridgepointe, and not with respect to the acts, omissions, or
ownership interests of any other Selling Shareholder, to Amerac as follows:
3.1 Existence and Power.
-------------------
(a) Each of Fremont and Ridgepointe is duly organized, validly
existing, and in good standing under the laws of its jurisdiction of
organization, and has all corporate power and authority to own, lease, and
operate its properties and to carry on its business as now conducted. Each of
Fremont and Ridgepointe is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the character of
the property
19
<PAGE>
owned or leased by it or the nature of its activities makes such qualification
necessary. The Selling Shareholders have heretofore made available to Amerac
true and complete copies of the articles of incorporation and bylaws of Fremont
and Ridgepointe as currently in effect.
(b) Powell represents and warrants that it is duly organized, validly
existing, and in good standing under the laws of the jurisdiction of its
organization and has all corporate power and authority to own, lease, and
operate its properties and to carry on its business as now conducted. Powell
has heretofore made available to Amerac true and complete copies of Powell's
articles of incorporation and bylaws as currently in effect.
(c) The Partnership is a limited partnership duly formed and validly
existing under the laws of the State of Florida.
3.2 Authorization. Powell represents and warrants that the execution,
-------------
delivery, and performance by Powell of this Agreement, and the consummation by
Powell of the transactions contemplated herein, are within Powell's corporate
powers and have been duly authorized by all necessary corporate action. The
Partnership represents and warrants that the execution, delivery, and
performance by the Partnership of this Agreement, and the consummation by the
Partnership of the transactions contemplated herein, are within the
Partnership's powers and have been duly authorized by all necessary partnership
action. Each Other Selling Shareholder represents and warrants that it has the
right, power, and authority to enter into this Agreement and to consummate the
transactions contemplated in this Agreement.
3.3 Governmental Authorization. The execution, delivery, and performance
--------------------------
by the Selling Shareholders of this Agreement and the consummation by the
Selling Shareholders of the transactions contemplated herein require no action
by or in respect of, or filing with, any governmental body, agency, official, or
authority.
3.4 Subsidiaries. (a) For purposes of this Agreement, as of the date of
------------
this Agreement, FRI is the only corporation, partnership, joint venture,
business trust, or other legal entity in which Fremont directly or indirectly
beneficially owns fifty percent (50%) or more of the voting stock or equivalent
interest. As of the Closing Date, Fremont will not directly or indirectly
beneficially own fifty percent (50%) or more of the voting stock or equivalent
interest of any corporation, partnership, joint venture, business trust, or
other legal entity, and it will not be a general partner of any partnership.
(b) Except for its interest in Fremont, Ridgepointe does not directly
or indirectly beneficially own fifty percent (50%) or more of the voting stock
or equivalent interest of any corporation, partnership, joint venture, business
trust, or other legal entity, and is not a general partner of any partnership.
3.5 Non-Contravention.
-----------------
(a) Powell represents and warrants that the execution, delivery, and
performance by Powell of this Agreement and the consummation by Powell of the
transactions contemplated herein will not conflict with or result in a breach of
any provisions of the articles
20
<PAGE>
of incorporation or bylaws of Powell. The Partnership represents and warrants
that the execution, delivery, and performance by the Partnership of this
Agreement and the consummation by the Partnership of the transactions
contemplated herein will not conflict with or result in a breach of any
provisions of the agreement of limited partnership or other governing documents
of the Partnership. Each Selling Shareholder represents and warrants that the
execution, delivery, and performance by the Selling Shareholders of this
Agreement and the consummation by the Selling Shareholders of the transactions
contemplated hereby do not and will not (i) contravene or constitute a default
under or give rise to (or give rise after the giving of notice, the passage of
time, or both) a right of termination, cancellation, or acceleration of any
obligation of such Selling Shareholder or to a loss of any benefit to which such
Selling Shareholder is entitled under any provision of (A) any law, regulation,
judgment, injunction, order, or decree binding upon such Selling Shareholder, or
(B) any agreement, contract, or other instrument binding upon such Selling
Shareholder or any license, franchise, permit, or other similar authorization
held by such Selling Shareholder, or (ii) result in the creation or imposition
of any Lien on any asset of such Selling Shareholder.
(b) The execution, delivery and performance by the Selling
Shareholders, Fremont, and Ridgepointe of this Agreement and the consummation by
the Selling Shareholders of the transactions contemplated hereby do not and will
not (i) contravene or constitute a default under or give rise to (or give rise
after the giving of notice, the passage of time or both) a right of termination,
cancellation, or acceleration of any obligation of Fremont or Ridgepointe, or to
a loss of any benefit to which Fremont or Ridgepointe is entitled under any
provision of (A) the articles of incorporation or bylaws or other governing
documents of, respectively, Fremont or Ridgepointe, (B) any law, regulation,
judgment, injunction, order, or decree binding upon Fremont or Ridgepointe, or
(C) any agreement, contract or other instrument binding upon Fremont or
Ridgepointe, or any license, franchise, permit or other similar authorization
held by Fremont or Ridgepointe, or (ii) result in the creation or imposition of
any Lien on any asset of Fremont or Ridgepointe.
(c) For purposes of this Agreement, "Lien" means, with respect to any
asset, any mortgage, lien, pledge, charge, security interest, sale/leaseback or
similar arrangement, restriction on transfer, or other encumbrance of any kind
in respect of such asset.
3.6 Binding Effect. This Agreement has been duly authorized, executed and
--------------
delivered by the Selling Shareholders and constitutes the valid and binding
agreement of each Selling Shareholder enforceable in accordance with its terms,
subject to the effects of bankruptcy, insolvency, reorganization, moratorium,
and similar laws, as well as to principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
3.7 Ownership of Fremont Common Stock and Ridgepointe Common Stock.
--------------------------------------------------------------
Powell represents and warrants that it owns, beneficially and of record, the
number of shares of Fremont Common Stock and Ridgepointe Common Stock set forth
opposite its name in Sections I and II of Schedule 1.01, free and clear of all
-------------
Liens, and is not subject to any agreements or understandings with respect to
the voting or transfer of such shares. Each Other Selling Shareholder
represents and warrants that it owns, beneficially and of record, the number of
shares of Ridgepointe Common Stock set forth opposite such Other Selling
Shareholder's name
21
<PAGE>
in Section II of Schedule 1.01, free and clear of all Liens, and is not subject
-------------
to any agreements or understandings with respect to the voting or transfer of
such shares. Such shares of Ridgepointe Common Stock constitute all of the
issued and outstanding shares of capital stock of Ridgepointe, and such shares
of Fremont Common Stock constitute all of the issued and outstanding capital
stock of Fremont except for the capital stock of Fremont owned by Ridgepointe.
3.8 Accredited Investor. Each Other Selling Shareholder and the
-------------------
Partnership is an "Accredited Investor" as such term is defined under Regulation
D of the of 1933 Act and warrants that it has accurately completed and delivered
an Accredited Investor Certificate in the form of Exhibit F hereto. Powell
---------
represents and warrants that, with the exception of Michael L. Powell, each of
its equity owners is an Accredited Investor.
3.9 Capitalization of Fremont and Ridgepointe.
-----------------------------------------
(a) The authorized capital stock of Fremont consists of 50,000 shares
of Fremont Common Stock. As of October 31, 1995, there were outstanding 800
shares of Fremont Common Stock. All outstanding shares of capital stock of
Fremont have been duly authorized and validly issued and are fully paid and
nonassessable and were issued free of preemptive rights. Except as set forth in
this Section 3.9(a), there are outstanding (i) no shares of capital stock or
other voting securities of Fremont, (ii) no securities of Fremont convertible
into or exchangeable for shares of capital stock or voting securities of
Fremont, (iii) no options or other rights to acquire from Fremont, and no
obligation of Fremont to issue, any capital stock, voting securities or
securities convertible into or exchangeable for capital stock or voting
securities of Fremont, and (iv) no equity equivalents, interests in the
ownership or earnings of Fremont or other similar rights (collectively, "Fremont
Securities"). There are no outstanding obligations of Fremont to repurchase,
redeem or otherwise acquire any Fremont Securities.
(b) The authorized capital stock of Ridgepointe consists of 12,500
shares of Ridgepointe Common Stock. As of October 31, 1995, there were
outstanding 10,000 shares of Ridgepointe Common Stock. All outstanding shares
of capital stock of Ridgepointe have been duly authorized and validly issued and
are fully paid and nonassessable and were issued free of preemptive rights.
Except as set forth in this Section 3.9(b), there are outstanding (i) no shares
of capital stock or other voting securities of Ridgepointe, (ii) no securities
of Ridgepointe convertible into or exchangeable for shares of capital stock or
voting securities of Ridgepointe, (iii) no options or other rights to acquire
from Ridgepointe, and no obligation of Ridgepointe to issue, any capital stock,
voting securities, or securities convertible into or exchangeable for capital
stock or voting securities of Ridgepointe, and (iv) no equity equivalents,
interests in the ownership, or earnings of Ridgepointe or other similar rights
(collectively, "Ridgepointe Securities"). There are no outstanding obligations
of Ridgepointe to repurchase, redeem, or otherwise acquire any Ridgepointe
Securities.
3.10 Financial Statements.
--------------------
(a) The consolidated financial statements of Fremont dated and for the
periods ended March 31, 1993, March 31, 1994, and March 31, 1995, and the
consolidated interim
22
<PAGE>
financial statements of Fremont dated and for the period ended October 31, 1995
(the "Interim Fremont Financial Statements"), fairly present in all material
respects, in conformity with GAAP (except that transactions are reflected
therein on a cash basis rather than on an accrual basis), the consolidated
financial position of Fremont and the Fremont Subsidiaries as of the dates
thereof and the consolidated results of operations and cash flows or changes in
financial position for the periods then ended (subject to normal year-end
adjustments in the case of the Interim Fremont Financial Statements).
(b) The consolidated financial statements of Ridgepointe dated and for
the periods ended February 28, 1993, February 28, 1994, and February 28, 1995,
and the consolidated interim financial statements of Ridgepointe dated and for
the period ended October 31, 1995 (the "Interim Ridgepointe Financial
Statements"), fairly present in all material respects, in conformity with GAAP
(except that transactions are reflected therein on a cash basis rather than on
an accrual basis), the consolidated financial position of Ridgepointe as of the
dates thereof and the consolidated results of operations and cash flows or
changes in financial position for the periods then ended (subject to normal
year-end adjustments in the case of the Interim Ridgepointe Financial
Statements).
(c) For purposes of this Agreement, "Fremont Financial Statements"
means the consolidated financial statements of Fremont as of and for the years
ended March 31, 1993, March 31, 1994, and March 31, 1995, and the Interim
Fremont Financial Statements; "Ridgepointe Financial Statements" means the
consolidated financial statements of Ridgepointe as of and for the years ended
February 28, 1993, February 28, 1994, and February 28, 1995, and the Interim
Ridgepointe Financial Statements; and "Financial Statement Date" means October
31, 1995.
3.11 No Material Adverse Change. Since the Financial Statement Date, there
--------------------------
has not been any material adverse change in the business or condition of Fremont
or Ridgepointe. Since the Financial Statement Date, neither Fremont nor
Ridgepointe has taken any action that would be prohibited by Section 6.1 if such
section had been in effect.
3.12 No Undisclosed Liabilities. Except as shown in the Interim Fremont
--------------------------
Financial Statements and the Interim Ridgepointe Financial Statements, neither
Fremont nor Ridgepointe had, as of the Financial Statement Date, any liabilities
or obligations of any kind whatsoever, whether accrued, contingent, absolute,
determined, determinable, or otherwise. Since the Financial Statement Date,
neither Fremont nor Ridgepointe has incurred any such liabilities or obligations
(other than liabilities or obligations incurred in the ordinary course of
business consistent with past practices or pursuant to or as contemplated
hereby).
3.13 Legal Compliance. To the best knowledge of each Selling Shareholder
----------------
after due inquiry, Fremont and Ridgepointe have complied with all applicable
rules, regulations, and ordinances of any governmental authority having
jurisdiction over Fremont and Ridgepointe as to which non-compliance would have
a material adverse effect on Fremont or Ridgepointe, as applicable, or any of
their respective properties and assets, and have all governmental licenses,
authorizations, consents and approvals required. Fremont is in compliance with
all covenants, provisions, and requirements of its Credit Agreement ("Credit
Agreement") dated as of July 1,
23
<PAGE>
1991, as amended, with various banks and Union Bank & Trust Company of Oklahoma
City, as Agent.
3.14 Tax Returns and Taxes.
---------------------
(a) Each of Fremont and Ridgepointe have duly and timely filed with
the appropriate governmental authorities all tax returns (including returns of
estimated taxes), statements and reports required to be filed by them and have
paid all taxes (including any interest, penalties and additions thereto)
required to have been paid by them. All such tax returns, statements, and
reports are complete and accurate in all respects and properly reflect the
relevant taxes for the periods covered thereby. Each of Fremont and Ridgepointe
have withheld and paid all taxes required by law to have been withheld and paid
by them. The liability of Fremont and Ridgepointe for taxes not yet due and
payable does not, as of the Financial Statement Date, exceed the reserve for
taxes (rather than any reserve for deferred taxes established to reflect timing
differences between book and income tax income) set forth on the faces of,
respectively, the Interim Fremont Financial Statements and the Interim
Ridgepointe Financial Statements (rather than in any notes thereto), as adjusted
in accordance with GAAP for the period of time through the Closing Date.
(b) There is no pending or, to the best knowledge of any Selling
Shareholder after due inquiry, threatened action, proceeding, investigation,
examination, assessment, or claim for any deficiency by any governmental
authority for or relating to taxes of Fremont and Ridgepointe. Neither Fremont
nor Ridgepointe is currently the beneficiary of any waiver of any statute of
limitations in respect of taxes or of any extension of time within which to file
any tax return, statement, or report or to pay any tax assessment or deficiency.
There are no Liens relating to taxes on or, to the best knowledge of any Selling
Shareholder after due inquiry, threatened against any of the assets of Fremont
or Ridgepointe. Neither Fremont, Ridgepointe, nor any predecessor thereof is or
has been a party to any tax allocation or sharing agreement or a member of an
affiliated group of corporations filing a consolidated federal income tax
return. Each of Fremont and Ridgepointe has delivered to Amerac correct and
complete copies of their respective local, state, federal, and foreign income
tax returns filed or required to have been filed by them during the five (5)
calendar years preceding the date of this Agreement, together with all
amendments thereto and all examination reports and statements of deficiencies
assessed against or agreed to by them with respect to any taxes required to be
shown thereon.
(c) Neither Fremont nor Ridgepointe (i) has made any payments, is
obligated to make any payments, or is a party to any agreement that under any
circumstance could obligate it or any assignee thereof to make any payments that
in each case, will not be deductible under Section 280G of the Internal Revenue
Code of 1986 (the "Code"); (ii) has made any election under Treasury Regulation
Section 1.1502-20(g)(1); (iii) has made any election to have the provisions of
Code Section 341(f)(2) apply to it; (iv) has any liability for taxes of any
other person under Treasury Regulation Section 1.1502-6 (or any similar
provision of local, state, or foreign law); (v) has been a United States real
property holding corporation within the meaning of Code Section 897(c)(2) during
the period specified in Code Section 897(c)(1)(A)(ii); (vi) has sustained an
"overall foreign loss" within the meaning of Code Section 904(f); (vii) has
participated or cooperated with any "international boycott" within the meaning
of Code Section
24
<PAGE>
999; (viii) has made any election under or with respect to the application of
Code Section 197; (ix) owns any assets which are or will be subject to a lease
to a "tax exempt entity" as defined in Code Section 168(h)(2); or (x) owns any
assets which Amerac or any affiliate of Amerac will be required to treat as
being owned by another person pursuant to the " Safe Harbor Lease" provisions of
Code Section 168(f)(8) prior to repeal by the Tax Equity and Fiscal
Responsibility Act of 1982.
3.15 Financial Advisor Fees. There is no investment banker, broker,
----------------------
finder or other intermediary which has been retained by or is authorized to act
on behalf of the Selling Shareholders, Fremont, or Ridgepointe who might be
entitled to any fee or commission from Amerac or any of its affiliates upon the
consummation of the transactions contemplated in this Agreement.
3.16 Litigation. There are no actions, suits or proceedings to which
----------
Fremont or Ridgepointe is a party pending or, to the best knowledge of any
Selling Shareholder after due inquiry, threatened in any court or before or by
any federal, state, or other governmental department, commission, agency, or
other instrumentality, or before any arbitrator.
3.17 Insurance. Schedule 3.17 hereto lists all insurance policies owned by
--------- -------------
Fremont and Ridgepointe by which Fremont and Ridgepointe and their respective
properties or assets are covered against present losses, all of which are now in
full force and effect.
3.18 Employee Liabilities. Neither Fremont nor Ridgepointe will have, as
--------------------
of the Closing Date, any employment or personnel-related liabilities whatsoever,
including, but not limited to, any liability under any employment contract,
liability for wages or salary, liability for contemplated bonuses or
commissions, liability for severance (including, without limitation, as a result
of the transactions contemplated in this Agreement), COBRA liability, OSHA
liability, liability for disabled individuals, workers' compensation liability,
ERISA obligations or liability, WARN Act liability, sick pay, vacation accruals,
or similar matters, liability under any profit sharing plan, liability under any
pension plan, liability under any welfare benefit plan, or liability for any
claims alleging illegal discrimination of any type.
3.19 Books and Records. The minute books of Fremont and Ridgepointe
-----------------
contain a record of the corporate actions of the shareholders and directors (and
any committees thereof) of each corporation. Each of Fremont and Ridgepointe
maintains such business records required by applicable law or necessary to
conduct the businesses of Fremont and Ridgepointe, except where the failure to
do so would not, individually or in the aggregate, have a material adverse
effect on the business or condition of Fremont or Ridgepointe. All tax returns
and records that relate to the business of Fremont are located in the offices of
Fremont, and all tax returns and records that relate to the business of
Ridgepointe are located in the offices of Ridgepointe.
3.20 Assets.
------
(a) Solely for purposes of computing adjustments to the Initial
Purchase Consideration as provided in this Agreement, the Selling Shareholders
warrant that Fremont's title to the Evaluated Interests is, as of the
Engineering Date or will be as of the Closing Date,
25
<PAGE>
Good and Marketable Title. Amerac's sole and exclusive remedy for any
inaccuracy in or breach of the foregoing warranty shall be limited to the
provisions of Article II.
(b) With respect to all other assets of Fremont, Fremont has such
title as grants to Fremont the benefits and burdens of ownership thereof to the
full extent described in the conveyances, leases, agreements, instruments, and
other documents currently in effect that define Fremont's ownership thereof, and
subject only to the obligations set forth in such agreements, free and clear of
all Liens.
(c) Ridgepointe has not engaged in any material business activity
prior to the date hereof since December 31, 1993, except in connection with its
ownership interest in Fremont, its organization, and this Agreement, and
Ridgepointe's sole assets consist of 400 shares of Fremont Common Stock, which
constitutes all of the issued and outstanding shares of Fremont Common Stock
that are not owned by the Selling Shareholders.
3.21 Intellectual Property Rights. Neither Fremont nor Ridgepointe holds
----------------------------
any material patents or copyrights. Fremont and Ridgepointe own or have rights
to use all trademarks, servicemarks, and trade names, free from burdensome
restrictions, that are necessary for the operation of their respective
businesses as presently conducted. Neither Fremont nor Ridgepointe have
received any written notice or claim of any infringement, violation, misuse or
misappropriation by Fremont or Ridgepointe of any patent, trademark, service
mark, trade dress, trade name, copyright, trade secret, confidential
information, proprietary information, or similar right owned by any third party.
3.22 Leases and Wells. To the best knowledge of each Selling Shareholder
----------------
after due inquiry, each of the oil and gas leases included in the Oil and Gas
Properties (the "Leases") is in full force and effect. To the best knowledge of
each Selling Shareholder after due inquiry, Fremont is not in material breach or
material default, nor has there occurred any event, fact, or circumstance that,
with the lapse of time or the giving of notice, or both, would constitute such a
breach or default by Fremont, with respect to any of its obligations under any
Lease. Fremont has correctly made, or caused to be correctly made, all
payments, including royalties, delay rentals, shut-in well payments, and other
lease maintenance payments, due in respect of the Leases thereunder. To the
best knowledge of each Selling Shareholder after due inquiry, no other party
owning an interest in any Lease is in material breach or material default with
respect to any of its obligations thereunder. No lessor under any Lease has
given or, to the best knowledge of each Selling Shareholder after due inquiry,
threatened to give notice of any action to terminate, cancel, rescind,
repudiate, or procure a judicial reformation of any Lease or any provisions
thereof. All of the wells included in the Evaluated Interests have been
drilled, completed, and operated within the boundaries of the Leases or within
the limits otherwise permitted by contract, pooling or unit agreement, and by
law and in compliance with the provisions of the relevant Applicable Contracts
and all applicable rules, regulations, permits, judgments, orders and decrees of
any court or federal and state regulatory authorities having jurisdiction
thereof; and the production of oil and gas therefrom has not been in excess of
the
26
<PAGE>
allowable production allocated to such well. The wells described on Exhibit A
---------
are the only wells located on the Oil and Gas Properties.
3.23 Marketing. Except as disclosed on Schedule 3.23, no amounts of
--------- -------------
hydrocarbons produced from the Evaluated Interests are subject to a sales
contract (except for contracts terminable without penalty on not more than
thirty (30) days notice), and except as may be contained in any document
described on Schedule 3.23, no person has any call upon, option to purchase, or
-------------
similar rights under any agreement with respect to the Evaluated Interests or to
the production therefrom. Fremont has not in any respect collected, nor will
Fremont in any respect collect, any proceeds from the sale of hydrocarbons
produced from the Evaluated Interests that are subject to refund except as
disclosed on Schedule 3.23. As of the Engineering Date, proceeds from the sale
-------------
of oil, condensate, and gas from the Evaluated Interests were being received in
all respects by Fremont in a timely manner and were not being held in suspense
for any reason, except as disclosed on Schedule 3.23. Fremont has not been, nor
-------------
will be, obligated by virtue of any prepayment made under any production sales
contract or any other contract containing a "take-or-pay" clause, or under any
production payment, forward sale, gas balancing, deferred production, or similar
arrangement to deliver oil, gas, or other minerals produced from or allocated to
any of the Evaluated Interests at some future time without receiving full
payment therefor at the time of delivery, except as disclosed on Schedule 3.23.
-------------
Except as disclosed on Schedule 3.23, there are no material gas imbalances as
-------------
between Fremont and any third party with respect to the Evaluated Interests.
3.24 Applicable Contracts. With respect to the Applicable Contracts: (a)
--------------------
to the best knowledge of each Selling Shareholder after due inquiry, all
Applicable Contracts are in full force and effect and are the valid and legally
binding obligations of the parties thereto and are enforceable in accordance
with their respective terms, except to the extent that such enforcement may be
limited by applicable bankruptcy, insolvency and similar laws affecting
creditors' rights generally, and by general equitable principles (regardless of
whether such enforceability is considered in a proceeding in equity or at law);
(b) to the best knowledge of each Selling Shareholder after due inquiry, Fremont
is not in material breach or material default, nor has there occurred any event,
fact, or circumstance that, with the lapse of time or giving of notice, or both,
would constitute such a breach or default by Fremont, with respect to any of its
obligations under any Applicable Contract; and (c) neither Fremont nor, to the
best knowledge of each Selling Shareholder after due inquiry, any other party to
any Applicable Contract has given or threatened to give notice of any action to
terminate, cancel, rescind, or procure a judicial reformation of any Applicable
Contract or any provision thereof.
3.25 Pooling, Unitization, and Communitization Agreements. With respect to
----------------------------------------------------
any unit agreements, pooling agreements, and communitization agreements creating
interests constituting the Evaluated Interests: (a) Fremont has in all respects
fulfilled all requirements for filings, certificates, disclosures of parties in
interest, and other similar matters contained in (or otherwise applicable
thereto by law, rule or regulation) the Leases or other documents granting or
governing the operation or maintenance of the Evaluated Interests, and Fremont
is fully qualified to own, hold, and exercise such rights under such Leases or
other documents; and (b) there are no express contractual obligations to drill
additional wells or to engage in other express development operations, except
for obligations arising under offset well provisions and
27
<PAGE>
obligations arising under provisions of unit operating agreements that allow the
parties thereto to elect whether or not they will participate; however, there
are no current proposals to drill such wells.
3.26 Operating Agreements. With respect to the joint, unit, or other
--------------------
operating agreements relating to the Evaluated Interests: (a) except as
disclosed on Schedule 3.26, there are no outstanding calls or payments due from
-------------
Fremont under authorities for expenditures ("AFE's"); (b) Fremont has listed on
-----
Schedule 3.26 the status of all material operations by less than all parties
- -------------
relating to the Evaluated Interests, including the status of recoupment by the
consenting parties of applicable non-consent penalties and Fremont's interests
therein before and after recoupment; and (iii) except as disclosed on Schedule
--------
3.26, there are no operations under the operating agreements with respect to
- ----
which Fremont has become a non-consenting party.
3.27 Environmental Matters.
---------------------
(a) Except as disclosed on Schedule 3.27: (i) Fremont has obtained or
-------------
caused to have been obtained all permits, licenses and other authorizations that
are required under all Environmental Laws ("Environmental Permits"), and, to the
best knowledge of each Selling Shareholder after due inquiry, all such
Environmental Permits are currently in full force and effect; (ii) to the best
knowledge of each Selling Shareholder after due inquiry, Fremont and the
Evaluated Interests are in compliance in all material respects with all
Environmental Laws and all terms and conditions of such Environmental Permits;
and (iii) there has been no Release, and, to the best knowledge of each Selling
Shareholder after due inquiry, no threat of a Release, of any Environmental
Contaminants arising from, based upon, associated with, or related to Fremont's
use, ownership, or operation of the Oil and Gas Properties, except for matters
that have been remedied and have no continuing material adverse effect upon
Fremont or the Oil and Gas Properties; and (iv) to the best knowledge of the
Selling Shareholders after due inquiry, there has been no Release, and no threat
of a Release, of any Environmental Contaminants arising from, based upon,
associated with, or related to the use, ownership, or operation of the Oil and
Gas Properties by Fremont's predecessors in title, except for matters that have
been remedied and have no continuing material adverse effect upon Fremont or the
Oil and Gas Properties.
(b) Except as disclosed on Schedule 3.27, Fremont has not received a
-------------
written notice of a claim that: (i) Fremont has violated, or is about to
violate, any Environmental Law; (ii) there has been a Release, or there is a
threat of a Release, of Environmental Contaminants on, to, or from the Oil and
Gas Properties for which Fremont is or may be liable to any third party for
injury to or death of any person, persons, or other living things, or damage to
or loss or destruction of property; (iii) Fremont may be or is liable, in whole
or in part, for the costs of cleaning up, remediating, removing, or responding
to a Release or a threat of a Release of Environmental Contaminants; or (iv) the
Oil and Gas Properties are subject to a Lien in favor of any governmental entity
for any liability, costs, or damages under any Environmental Laws arising from,
or any costs incurred by such governmental entity in response to, a Release of
Environmental Contaminants.
28
<PAGE>
3.28 Plugging and Abandonment. No well included in the Evaluated
------------------------
Interests, as of the Engineering Date, had been permanently plugged and
abandoned or AFE'd for permanent plugging and abandonment.
3.29 Disbursement of Proceeds. Except proceeds from the sale of production
------------------------
attributable to the Oil and Gas Properties being held in suspense in accordance
with prudent industry practice, all of such proceeds of production have been and
are being accounted for under appropriate division orders, transfer orders, or
similar documents signed by or otherwise binding on the parties receiving such
proceeds and reflecting as to each party the decimal interest of such party.
3.30 Certain Agreements; Payouts. Except as set forth in Schedule 3.30, no
--------------------------- -------------
Evaluated Interest is subject to any area of mutual interest agreement or any
farmout or farmin agreement pursuant to which Fremont or Amerac may be obligated
to make assignments after the Engineering Date. Except as set forth on Schedule
--------
3.30, no Evaluated Interest is subject to any tax partnership. Where Exhibit A
- ---- ---------
shows an Evaluated Interest described therein to be subject to change "After
Reversion," or similar designations, such change will occur upon either the
recovery from the production from such Evaluated Interest of a volume of such
production, or the recovery from the proceeds of production from such Evaluated
Interest of a sum of money, in either case as set forth in Schedule 3.30 as the
-------------
"Reversion Amount".
3.31 Information. To the best knowledge of each Selling Shareholder after
-----------
due inquiry, all of the revenue and cost information, records, and data relating
to the Evaluated Interests furnished by the Selling Shareholders to Amerac,
either prior to the execution of this Agreement or to be furnished prior to
Closing, is not, and shall not be, incorrect or inaccurate in any material
respect when so furnished, and no documents relating thereto were removed, nor
were any information or documents relating thereto omitted, from the data or
documents relating thereto furnished by the Selling Shareholders to Amerac,
which are necessary to make the data furnished not misleading in any material
respect; provided, however, that this representation and warranty is limited
solely to matters of fact that are not otherwise publicly available or known to
Amerac.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF AMERAC
----------------------------------------
Amerac represents and warrants to each of the Selling Shareholders that:
4.1 Corporate Existence and Power. Amerac is duly organized, validly
-----------------------------
existing and in good standing under the laws of its jurisdiction of
organization, and has all corporate power and authority to own, lease, and
operate its properties and to carry on its business as now conducted. Amerac is
duly qualified to do business as a foreign corporation and is in good standing
in each jurisdiction where the character of the property owned or leased by it
or the nature of its activities makes such qualification necessary. Amerac has
heretofore made available to the Selling Shareholders true and complete copies
of Amerac's certificate of incorporation and bylaws as currently in effect.
29
<PAGE>
4.2 Corporate Authorization. The execution, delivery, and performance by
-----------------------
Amerac of this Agreement and the consummation by Amerac of the transactions
contemplated hereby are within Amerac's corporate powers and have been duly
authorized by all necessary corporate action.
4.3 Governmental Authorization. The execution, delivery and performance
--------------------------
by Amerac of this Agreement and the consummation by Amerac of the transactions
contemplated herein require no action by or in respect of, or filing with, any
governmental body, agency, official or authority other than compliance with any
applicable requirements of the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder (the "1934 Act").
4.4 Subsidiaries. Amerac does not directly or indirectly beneficially own
------------
fifty percent (50%) or more of the voting stock or equivalent interest of any
corporation, partnership, joint venture, business trust, or other legal entity,
and is not a general partner of any partnership.
4.5 Non-Contravention. The execution, delivery and performance by Amerac
-----------------
of this Agreement and the consummation by Amerac of the transactions
contemplated hereby do not and will not (i) contravene or constitute a default
under or give rise to (or give rise after the giving of notice, the passage of
time, or both) a right of termination, cancellation, or acceleration of any
obligation of Amerac or to a loss of any benefit to which Amerac is entitled
under any provision of (a) the certificate of incorporation or bylaws of Amerac,
(b) assuming compliance with the matter referred to in Section 4.3, any law,
regulation, judgment, injunction, order, or decree binding upon Amerac, or (c)
any agreement, contract or other instrument binding upon Amerac or any license,
franchise, permit or other similar authorization held by Amerac, or (ii) result
in the creation or imposition of any Lien on any asset of Amerac, except for
Liens granted in favor of Bank pursuant to Amerac's credit facility therewith to
secure Amerac's borrowings in connection with the transactions contemplated in
this Agreement.
4.6 Binding Effect. This Agreement has been duly authorized, executed,
--------------
and delivered by Amerac and constitutes a valid and binding agreement of Amerac
enforceable in accordance with its terms, subject to the effects of bankruptcy,
insolvency, reorganization, moratorium, and similar laws, as well as to
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
4.7 Capitalization. As of November 30, 1995, there were (i) 50,000,000
--------------
authorized shares of Amerac Common Stock, of which 20,510,444 shares were issued
and outstanding; (ii) 10,000,000 authorized shares of Amerac preferred stock,
par value $1.00 per share, of which 1,747,058 shares of $4.00 Senior Preferred
Stock (the "$4.00 Preferred Stock") were issued and outstanding. All such
outstanding shares of Amerac Common Stock and $4.00 Preferred Stock have been,
and the Amerac Shares to be issued pursuant to this Agreement will be, duly
authorized, validly issued, fully paid and nonassessable and were, or will be,
issued free of preemptive rights. Except as set forth in this Section 4.7, or
as disclosed in Amerac's Annual Report on Form 10-K for the year ended December
31, 1994, its Quarterly Report on Form 10-Q for the periods ended September 30,
1995, and its Proxy Statement dated March 3, 1995, or as set forth in Schedule
--------
4.7 hereto, there are outstanding (a) no shares of capital stock or
- ---
30
<PAGE>
other voting securities of Amerac, (b) no securities of Amerac convertible into
or exchangeable for shares of capital stock or voting securities of Amerac, (c)
no options or other rights to acquire from Amerac, and no obligation of Amerac
to issue, any capital stock, voting securities, or securities convertible into
or exchangeable for capital stock or voting securities of Amerac, and (d) no
equity equivalents, interests in the ownership or earnings of Amerac, or other
similar rights (collectively, "Amerac Securities"). There are no outstanding
obligations of Amerac to repurchase, redeem or otherwise acquire any Amerac
Securities.
4.8 SEC Filings. Amerac has made available to the Selling Shareholders
-----------
(a) its Annual Reports on Form 10-K for each of the three fiscal years ended
December 31, 1994, and (b) all of its other reports or registration statements
filed with the Securities and Exchange Commission (the "SEC") since January 1,
1992, through the date hereof (the "SEC Filings"). As of their respective
dates, the SEC Filings complied as to form in all material respects with the
applicable requirements of the 1934 Act and 1933 Act and the rules and
regulations promulgated thereunder, and did not contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements contained therein, in the light of
circumstances under which they were made, not misleading.
4.9 Legal Compliance. Except as set forth in the SEC Filings, Amerac has
----------------
complied with all applicable rules, regulations, and ordinances of any
governmental authority having jurisdiction over Amerac and has all governmental
licenses, authorizations, consents and approvals required.
4.10 Litigation. Except as set forth in the SEC Filings, there are no
----------
actions, suits or proceedings to which Amerac is a party pending or, to Amerac's
best knowledge after due inquiry, threatened in any court or before or by any
federal, state, or other governmental department, commission, agency, or other
instrumentality, or before any arbitrator.
ARTICLE V
GENERAL COVENANTS
-----------------
Amerac, Ridgepointe, Fremont, and the Selling Shareholders agree that:
5.1 Access to Information. Each party (a) shall afford to the other
---------------------
parties and their respective counsel, financial advisors, and auditors and any
person providing or proposing to provide financing for the transactions
contemplated hereby and their respective authorized representatives and agents
reasonable access to all of its respective offices, properties, books and
records, (b) will furnish to such persons such financial and operating data and
other information as such persons may reasonably request, and (c) will instruct
its respective employees, counsel, and financial advisors to cooperate with such
persons in their investigation of the business of such party, provided that the
confidentiality of any data or information so acquired shall be maintained in
accordance with Section 5.5 of this Agreement.
5.2 Reasonable Best Efforts. Subject to the terms and conditions of this
-----------------------
Agreement, each party will use its reasonable best efforts to take, or to cause
to be taken, all action and to
31
<PAGE>
do, or cause to be done, all things necessary, proper, or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement, including (a) cooperation in
determining whether any action by or in respect of, or filing with, any
governmental body, agency, or official or authority is required, or any actions,
consents, approvals, or waivers are required to be obtained from parties to any
material contracts, in connection with the consummation of the transactions
contemplated by this Agreement; (b) cooperation in seeking and obtaining any
such actions, consents, approvals or waivers; and (c) the execution of any
additional instruments necessary to consummate the transactions contemplated
hereby.
5.3 Public Announcements. The parties agree to consult with each other
--------------------
before issuing any press release or making any public statement with respect to
this Agreement and the transactions contemplated hereby and, except as may be
required by applicable law, the parties hereto will not issue any such press
release or make any such public statement prior to such consultation. Amerac
will give all notices required under the 1933 Act, 1934 Act, and any other
applicable state or federal securities laws.
5.4 Notification of Certain Matters. Each party shall give prompt notice
-------------------------------
to the others of (a) the occurrence or nonoccurrence of any event the occurrence
or nonoccurrence of which would be likely to cause any representation or
warranty of such party contained in this Agreement to be untrue or inaccurate in
any material respect at or prior to the Closing Date and (b) any material
failure of such party to comply with or satisfy any, covenant, condition, or
agreement to be complied with or satisfied by it hereunder; provided, however,
that the delivery of any notice pursuant to this Section 5.4 shall not limit or
otherwise affect the remedies available hereunder to the parties receiving such
notice.
5.5 Confidential Information. Each party and its affiliates will hold,
------------------------
and will use their best efforts to cause their respective accountants, counsel,
consultants, advisors, and agents to hold, in confidence all confidential
documents and information concerning the other parties and their respective
affiliates furnished to such party or its affiliates in connection with the
transactions contemplated in this Agreement, except to the extent that such
information can be shown to have been (a) previously known on a nonconfidential
basis by such party, (b) in the public domain through no fault of such party,
(c) later lawfully acquired by such party from sources other than the other
parties or their affiliates, (d) disclosed pursuant to the operation of
applicable law, regulation, or other governmental authority, or (e) disclosed
under compulsion of oral questions at trial, interrogatories, requests for
information or documents, subpoena, civil investigation demand, or similar
judicial or administrative process; provided that such party may disclose such
information to its officers, directors, employees, accountants, counsel,
consultants, advisors, and agents in connection with the transactions
contemplated by this Agreement and to its lenders in connection with obtaining
the financing for and consents to the transactions contemplated by this
Agreement so long as such persons are informed by such party of the confidential
nature of such information and are directed by such party to treat such
information confidentially. The obligation of such party and its affiliates to
hold any such information in confidence shall be satisfied if they exercise the
same care with respect to such information as they would take to preserve the
confidentiality of their own similar information. If this Agreement is
terminated, each party and its affiliates will, and will use their best efforts
to cause
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their respective accountants, counsel, consultants, advisors, and agents to,
destroy or deliver to any other party, upon request, all documents and other
materials, and all copies thereof, obtained by such party or its affiliates or
on their behalf from the other party and its affiliates in connection with this
Agreement that are subject to such confidence. This Section 5.5 supersedes any
prior confidentiality agreement among the parties.
5.6 Certain Tax Matters.
-------------------
(a) Amerac shall cause to be prepared and filed any tax returns,
statements or reports ("Tax Returns") of Ridgepointe and Fremont covering
taxable periods ending on or before the Closing Date which were not required to
have been filed on or before the Closing Date; provided that Amerac must obtain
the consent of the Selling Shareholders to the form and content of any such Tax
Returns, prior to the filing thereof, which consent shall not be unreasonably
withheld. Such returns shall be prepared by Petroleum Financial, Inc. ("PFI"),
and the costs associated with the preparation of such returns shall be borne 5/6
by the Selling Shareholders and 1/6 by Amerac; provided, however, that in no
event shall the Selling Shareholders be obligated to bear any portion of any
such preparation costs in excess of $2,000.00. The Selling Shareholders shall,
jointly and severally, within fifteen (15) days after payment thereof and
receipt of notice of such payment, reimburse Amerac and its affiliates for all
taxes (including interest, penalties and additions to tax) ("Taxes") relating to
taxable periods of Fremont and Ridgepointe ending on or before the Closing Date.
(b) Amerac shall prepare and file, or cause to be prepared and filed,
any Tax Returns of Fremont and Ridgepointe covering taxable periods which begin
before the Closing Date and end after the Closing Date ("Straddle Periods"). The
Selling Shareholders shall, jointly and severally, within fifteen (15) days
after payment thereof and notice of such payment, reimburse Amerac for all Taxes
for any Straddle Period, to the extent related to the portion of the Straddle
Period ending on the Closing Date. For such purposes, the portion of any Tax
attributable to the portions of a Straddle Period ending on the Closing Date and
beginning after the Closing Date shall be determined by apportioning the Tax for
the entire Straddle Period among such periods based on the number of days in
each such period; provided that, in the case of Taxes based upon or related to
income or receipts, such portion shall be the amount of Tax which would have
been due if the relevant Straddle Period ended on the Closing Date. Any credits
relating to a Straddle Period shall be taken into account as though the relevant
Straddle Period ended on the Closing Date. All determinations necessary to give
effect to the foregoing allocations shall be made in a manner consistent with
prior practices of Fremont or Ridgepointe, as the case may be.
(c) The Selling Shareholders shall reasonably cooperate with Amerac in
connection with the filing of Tax Returns pursuant to this Section t.6 and any
audit, litigation, or other proceeding with respect to Taxes. Such cooperation
shall include the provision of copies, at the requesting party's expense, of
records and information relevant to any such Tax Return or proceeding and making
employees available on a mutually convenient basis to provide additional
information and explanation of any material provided hereunder. The Selling
Shareholders shall cause Fremont and Ridgepointe duly, accurately, and timely
(with regard to
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any extensions of time) to file all Tax Returns and other documents required to
be filed by them, and to pay all taxes required to be paid by them, on or before
the Closing Date.
ARTICLE VI
COVENANTS OF SELLING SHAREHOLDERS
---------------------------------
6.1 Conduct of Business of Fremont and Ridgepointe. From the date hereof
----------------------------------------------
until the Closing Date, except as otherwise consented to by Amerac in writing or
as provided in this Agreement, the Selling Shareholders shall cause each of
Fremont and Ridgepointe to conduct its respective business in the ordinary
course consistent with past practices and to use its reasonable best efforts to
preserve intact its respective business organization and relationships with
third parties and to keep available the services of its respective present
officers and employees. Without limiting the generality of the foregoing, from
the date hereof until the Closing Date, and except as otherwise expressly
provided in this Agreement or as otherwise consented to in writing by Amerac,
the Selling Shareholders shall not permit Fremont or Ridgepointe to:
(a) amend its articles of incorporation, bylaws, or other constituent
documents;
(b) authorize for issuance, issue, sell, deliver, or agree or commit
to issue, sell, or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise) any stock
of any class or any other securities or equity equivalents or amend any of the
term of any such securities or agreements, except for issuances upon exercise of
options, warrants, commitments, subscriptions, rights to purchase, or
convertible securities outstanding as of the date hereof and except as
specifically contemplated by this Agreement (other than the transfer by a
Selling Shareholder of some or all of its shares of the Purchased Stock to a
charitable remainder trust, subject to the conditions that (i) any such trust
shall expressly assume and agree to be bound by the terms and provisions of this
Agreement and (ii) the instrument creating such trust shall expressly authorize
the trustee thereof to convey to Amerac the shares of the Purchased Stock
transferred to such trust and otherwise to take all actions necessary to
consummate the transactions contemplated herein);
(c) split, combine, or reclassify any shares of its capital stock, or
declare, set aside, or pay any dividend or other distribution (whether in cash,
stock or property or any combination thereof) in respect of its capital stock,
or, except pursuant to existing agreements, redeem or otherwise acquire any of
its securities;
(d) (i) incur or assume any debt or enter into any sale/leaseback or
similar transaction, except under Fremont's existing lines of credit and (A) in
amounts not material to Fremont's business or condition (in the case of Fremont)
and (B) in order to pay the contingent compensation, severance, and other
distributions referred to above in clause (b) of Section 1.04; (ii) assume,
guarantee, endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person (other than
wholly owned subsidiaries), except with respect to Fremont in the ordinary
course of business consistent with past practices and in amounts not material to
Fremont's business or condition (in the case of
34
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Fremont); (iii) make any loans, advances, or capital contributions to or
investments in any other person (other than wholly owned subsidiaries), other
than with respect to Fremont in the ordinary course of business consistent with
past practices and in amounts not material to Fremont's business or condition
(in the case of Fremont); (iv) create or permit to be created any Lien on any
shares of capital stock of Fremont or Ridgepointe; or (v) create or permit to be
created any Lien on any material assets;
(e) enter into, adopt, or amend, or terminate (except as may be
required by law or existing agreement) any bonus, profit-sharing, compensation,
stock option, pension, retirement, deferred compensation, employment, or other
plan, agreement, or arrangement for the benefit of employees or increase in any
manner the compensation or fringe benefits of any director, officer, or
employee, in any such case with respect to employees who are not directors or
officers other than in the ordinary course of business consistent with past
practices, or enter into any contract, agreement, commitment, or arrangement to
do any of the foregoing, except as otherwise provided in this Agreement and
except for the payment of the contingent compensation, severance, and other
distributions referred to above in clause (b) of Section 1.04;
(f) change any method of accounting or accounting practice used,
except for any change required by reason of a change in generally accepted
accounting principles;
(g) make any material tax election except in the ordinary course of
business consistent with past practice, change any material tax election already
made, adopt or change any tax accounting method except in the ordinary course of
business consistent with past practice, enter into any closing agreement, settle
any tax claim or assessment, or consent to any tax claim or assessment or any
waiver of the statute of limitations for any such claim or assessment.
(h) revalue in an amount in excess of $10,000.00 per item or
$10,000.00 in the aggregate any of its assets, including writing down the value
of inventory or writing off notes or accounts receivable;
(i) acquire, sell, lease, or dispose of, directly or indirectly, any
assets (other than in the ordinary course of business consistent with past
practices or in connection with the sale by Fremont of (i) all of the issued and
outstanding shares of common stock of FRI, (ii) all of Fremont's shares of
Ridgepointe Common Stock to Powell and Thomas O. Goldsworthy, (iii) any accounts
receivable reflected as current assets on the Interim Fremont Financial
Statements, to the extent only that such accounts receivable (A) do not fall
within the class of accounts receivable the existence of which results in an
increase in the Initial Cash Amount in accordance with the provisions of Section
1.5(a)(iii), and (B) do not relate to joint interest billings sent to non-
operators prior to the Engineering Date in connection with operations to be
conducted on the Oil and Gas Properties after the Closing Date, and (iv)
vehicles and other personal property and equipment of Fremont that do not
constitute a part of the Oil and Gas Properties) or enter into any commitment or
transaction (other than in the ordinary course of business consistent with past
practices);
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(j) authorize any new capital expenditure or expenditures other than
with respect to Amerac in the ordinary course of business consistent with past
practices;
(k) implement or adopt any change in its tax methods, principles, or
elections, or settle or compromise any material tax liability;
(l) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction in the ordinary course of business
consistent with past practices; or
(m) take, or agree in writing or otherwise to take, any of the actions
described in this Section 6.1 or any action that would make any representation
or warranty inaccurate or untrue or that would result in any of the conditions
in Article IX not being satisfied.
6.2 Oil and Gas Operations. Without limiting the provisions of Section
----------------------
6.1, except as otherwise consented to in writing by Amerac or provided in this
Agreement, from the date hereof until the Closing Date, the Selling Shareholders
shall, or shall cause Fremont (or, with respect to non-operated wells, shall use
their reasonable commercial efforts to cause the operator of such wells): (a) to
operate and maintain the Oil and Gas Properties in a good and workmanlike manner
consistent with prior operations and prudent oil and gas practices; (b) not to
abandon any well on any Lease, or release or abandon all or any part of any
Evaluated Interest, or release or abandon all or any portion of any Lease; (c)
not to commence any operation on any Evaluated Interest anticipated to cost in
excess of $10,000.00 per operation net to Fremont's interest (except emergency
operations and operations required under presently existing contractual
obligations); (d) not to create or suffer to exist any Lien with respect to any
Evaluated Interest (except for Permitted Encumbrances); (e) not to enter into
any agreement for the sale, disposition, or encumbrance of any Oil and Gas
Property; (f) not to dedicate, sell, encumber, or dispose of any oil and gas
production attributable to the Oil and Gas Properties except in the ordinary
course of business; (g) not to agree to any material alterations in the Leases
or the Applicable Contracts and not to enter into any new contracts relating to
the Oil and Gas Properties (except for contracts terminable without penalty to
Fremont on not more than thirty (30) days notice); (h) to maintain in force all
insurance policies covering the Oil and Gas Properties that are presently in
force; (i) to pay or cause to be paid all costs and expenses incurred in
connection with the Oil and Gas Properties before they become delinquent; (j) to
perform all material obligations of Fremont under the Leases and the Applicable
Contracts and to maintain in all material respects the Oil and Gas Properties in
a manner consistent with prior operations; (k) to exercise due diligence in
safeguarding and maintaining secure and confidential all geological and
geophysical maps, confidential reports and data, and all other confidential data
owned by Fremont or relating in any way to the Evaluated Interests; (l) to
furnish Amerac with copies of all AFE's on material operations commenced, but
not completed, prior to the Engineering Date; (m) not to relinquish voluntarily
Fremont's position as operator with respect to any of the Evaluated Interests;
(n) promptly to notify Amerac of any notice or threatened notice of which
Fremont or any Selling Shareholder actually becomes aware relating to any
default, inquiry into any possible default, or action to alter, terminate,
rescind, repudiate, or procure a judicial reformation of any Lease or other
Applicable Contract or any provision thereof; and (o) promptly to notify Amerac
of any new suits, actions, or other proceedings
36
<PAGE>
before any court, arbitrator, or governmental agency, and any causes of action
that relate to the Oil and Gas Properties and that may materially impair the
value thereof.
6.3 Other Offers. From the date hereof until the termination of this
------------
Agreement, none of Fremont, Ridgepointe, or any Selling Shareholder, or any
officer, director, employee, representative or agent of Fremont, Ridgepointe, or
any Selling Shareholder will, directly or indirectly, (a) solicit, initiate, or
knowingly encourage any Acquisition Proposal (as hereinafter defined), or (b)
except to the extent that the Board of Directors of Fremont or Ridgepointe, as
applicable, determines, upon advice of outside counsel, that it is otherwise
required by its fiduciary duties to do so, engage in negotiations with, or
disclose any nonpublic information relating to Fremont or Ridgepointe, or afford
access to the properties, books, or records of Fremont or Ridgepointe, in each
case to any person that is considering making or has made an Acquisition
Proposal; provided that nothing contained in this Section 6.3 shall prohibit
Fremont or Ridgepointe or their respective Board of Directors from making such
disclosures to Fremont's or Ridgepointe's shareholders which, in the judgment of
the Board of Directors of Fremont or Ridgepointe, on the advice of outside
counsel, is required under applicable law. Fremont and Ridgepointe or the
Selling Shareholders shall promptly notify Amerac after receipt of any
Acquisition Proposal or any request for nonpublic information relating to
Fremont or Ridgepointe, or for access to the properties, books, or records of
Fremont or Ridgepointe by any person that is considering making or has made an
Acquisition Proposal, and will keep Amerac informed in all respects of the
status and details of any such Acquisition Proposal or request. The term
"Acquisition Proposal," as used herein, means any offer or proposal for, or any
indication of interest in, a merger or other business combination involving
Fremont or Ridgepointe, or the acquisition of any equity interest in, or a
substantial portion of the assets of, Fremont or Ridgepointe, other than the
transactions contemplated by this Agreement.
6.4 Imbalances. The Selling Shareholders understand that Amerac has not
----------
included in its engineering pertaining to the Evaluated Interests the effect of
any imbalances with respect to production taken or marketed from or attributable
to the Oil and Gas Properties. If either the Selling Shareholders or Amerac
determines, on or prior to the expiration of forty-five (45) days after the
Closing Date, that imbalances exist that have not previously been disclosed with
respect to the Oil and Gas Properties, then, subject to verification by the
other party, the Adjusted Purchase Consideration shall be adjusted (a) upward by
an amount equal to (i) the current market value of any hydrocarbons that
Fremont, as an underproduced party, may be entitled to take in excess of its
undivided interests in the Oil and Gas Properties as the result of the existence
of an imbalance at the wellhead or (ii) the amount of any payments received by
any of the Selling Shareholders for any hydrocarbons that have not been
delivered to the relevant purchaser or transporter as a result of the existence
of a pipeline imbalance, and (b) downward by an amount equal to the current
market value of any hydrocarbons that other parties may be entitled to recover
from the Oil and Gas Properties in excess of such other parties' undivided
interests therein as the result of the existence of an imbalance at the wellhead
as to which Fremont is an overproduced party. Upon the payment of the imbalance
amount by the appropriate party, the Selling Shareholders and Amerac agree to
waive any and all claims or other rights relating to the relevant imbalance
under this Agreement against the other party.
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6.5 Employee Matters. The Selling Shareholders shall cause Fremont and
----------------
Ridgepointe to obtain from each of their respective employees, on or before the
Closing Date, a release of Amerac and its affiliates as to all debts,
liabilities, and obligations of Fremont or Ridgepointe (as the case may be) to
such employee in form and substance satisfactory to Amerac.
6.6 Office Lease. The Selling Shareholders shall cause Fremont to assign
------------
that certain lease dated March 30, 1995 between Fremont and Union Plaza
Investors, L.L.C., to LTO Operating Company, which entity shall assume all
obligations of Fremont thereunder, and shall obtain from Union Plaza Investors,
L.L.C., a release of Fremont from all liability and obligation under such lease.
6.7 Expenses. If the transactions contemplated by this Agreement are
--------
consummated, all legal fees and expenses incurred by or on behalf of any Selling
Shareholder, Fremont, or Ridgepointe in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party which incurred such
legal fees and expenses; provided, however, that Amerac shall have no obligation
or liability with respect to any such legal fees and expenses of Fremont or
Ridgepointe that are not paid prior to the Closing, and any such unpaid legal
fees and expenses shall be the responsibility of the Selling Shareholders.
Amerac shall pay all legal fees and expenses incurred by it in connection with
this Agreement and the transactions contemplated hereby.
6.8 Records. At any time after the Closing pursuant to Amerac's
-------
reasonable instructions, the Selling Shareholders shall deliver, or cause to be
delivered, to Amerac possession and control of all of the books and records of
Fremont and Ridgepointe and all of their respective assets and properties,
including, without limitation, the Oil and Gas Properties. Amerac shall be
entitled to all original books and records of Fremont and Ridgepointe and shall
provide the Selling Shareholders with access to such books and records upon
reasonable notice.
6.9 Contract Operations Service Agreement; Ancillary Agreements. On the
-----------------------------------------------------------
Closing Date, the Selling Shareholders shall cause LTO Operating Company to
execute, and shall deliver to Amerac, the Contract Operations Service Agreement
in the form attached hereto as Exhibit I (the "Service Agreement") and the
---------
letter agreement in the form attached to the Service Agreement as Exhibit V. In
addition, on the Closing Date, the Selling Shareholders shall execute, and shall
cause to be executed by all parties identified therein as the "Fremont Group,"
and shall deliver to Amerac, the Area of Interest Agreement in the form attached
hereto as Exhibit J (the "Area of Interest Agreement").
---------
ARTICLE VII
COVENANTS OF AMERAC
-------------------
7.1 Contract Operations Service Agreement; Ancillary Agreements. On the
-----------------------------------------------------------
Closing Date, Amerac shall execute and deliver to LTO Operating Company the
Service Agreement and the letter agreement in the form attached to the Service
Agreement as Exhibit V. In addition, on the Closing Date, Amerac shall execute
and deliver the Area of Interest Agreement to the Selling Shareholders and the
other parties identified therein as the "Fremont Group."
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7.2 Federal Income Tax Refund. If Fremont receives a refund in connection
-------------------------
with its federal income tax returns for the fiscal years ended March 31, 1993,
1994, 1995, or 1996, Amerac agrees to pay any such refund to the Selling
Shareholders promptly after receipt.
7.3 Bonding Requirements. Promptly following the Closing, Amerac shall
--------------------
post with the relevant governmental authorities in the States of Oklahoma and
Kansas such bonds or other permissible evidence of financial assurance necessary
to replace the existing bonds and/or other evidence of financial assurance
posted by Fremont with such governmental authorities and secured by the personal
guaranties of V. Lee Powell and Thomas O. Goldsworthy. To the extent that the
substitution of such replacement bonds or other evidence of financial assurance
by Amerac results in the disbursement to Amerac by the relevant surety or
governmental authority of funds associated with the bonds or other evidence of
financial assurance being replaced, Amerac agrees to pay to the Selling
Shareholders any such funds received promptly after receipt.
ARTICLE VIII
INDEMNIFICATION
---------------
8.1 Indemnities of Selling Shareholders. Notwithstanding the Closing, and
-----------------------------------
regardless of any investigation made at any time by or on behalf of Amerac or
any information Amerac may have, each Selling Shareholder, severally in
accordance with its interests and not jointly, shall indemnify and hold harmless
Amerac and its affiliates, partners, officers, directors, shareholders,
employees, agents, and representatives, from and against any and all claims,
demands, actions, causes of action, suits, controversies, losses, judgments,
damages, liabilities, costs, expenses, obligations, and deficiencies (including,
without limitation, reasonable attorneys' fees and other costs and expenses
incident to the defense of any claim that results in litigation, or the
settlement of any claim, or the enforcement of this provision) (collectively,
"Claims"), caused by, arising out of, resulting from, or relating in any way to,
and to pay Amerac any sum that Amerac pays or becomes obligated to pay on
account of: (a) injury to or death of any person, persons, or other living
things, or loss or destruction of property, resulting directly or indirectly
from the Selling Shareholders' remediation of an Environmental Claim pursuant to
Section 2.3; (b) any liability or obligation (including, without limitation,
liabilities relating to Environmental Claims and well plugging, abandonment, and
site clearance) arising out of the ownership and operation by FPC of all
Evaluated Interests (if any) conveyed by Fremont to FPC pursuant to Section 2.3;
(c) any debts, liabilities, or obligations of Fremont, FRI, and Ridgepointe,
whether direct or indirect, fixed, contingent, or otherwise, that, as of the
Closing Date, are not expressly released by the party to whom the debt,
liability, or obligation is owed, or that are not satisfied or discharged by
Amerac (including, without limitation, any legal fees and expenses of Fremont
and Ridgepointe incurred in connection with this Agreement and the transactions
contemplated herein that, as of the Closing Date, have not been paid); (d) all
taxes (including interest, penalties, and additions to tax) arising from or as a
result of the transactions contemplated in this Agreement for which any Selling
Shareholder is responsible; (e) any breach or default in the performance by
Fremont, Ridgepointe, or any Selling Shareholder of any material covenant or
material agreement of such parties contained in this Agreement; and (f) any
breach of a material warranty (other than the warranty contained in Section
3.20(a), the remedy
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for which is set forth in Section 2.4, and the warranty contained in Section
3.27, to the extent of Environmental Claims pertaining to Evaluated Interests
other than those referred to above in clause (b) of this Section 8.1 as to which
Amerac receives a reduction in the Adjusted Purchase Consideration pursuant to
Section 2.3) or an inaccurate or erroneous material representation made by any
Selling Shareholder in this Agreement.
8.2 Indemnities of Amerac. Notwithstanding the Closing, and regardless of
---------------------
any investigation made at any time by or on behalf of the Selling Shareholders
or any information the Selling Shareholders may have, Amerac shall indemnify and
hold harmless the Selling Shareholders and their affiliates, partners, officers,
directors, shareholders, employees, agents, and representatives from and against
any and all Claims caused by, arising out of, resulting from, or relating in any
way to, and to pay the Selling Shareholders any sum that the Selling
Shareholders pay or become obligated to pay on account of: (a) injury to or
death of any person, persons, or other living things, or loss or destruction of
property, resulting directly or indirectly from Amerac's performance of
environmental assessments and inspections on the Oil and Gas Properties pursuant
to Section 2.3(a); (b) any liability or obligation to third parties arising out
of the ownership and operation of the business and activities of Fremont and
Ridgepointe by Amerac after the Closing Date; (c) all taxes (including interest,
penalties, and additions to tax) arising from or as a result of the transactions
contemplated by this Agreement for which Amerac is responsible hereunder; (d)
any breach or default in the performance by Amerac of any material covenant or
material agreement of Amerac contained in this Agreement; or (e) any breach of a
material warranty or an inaccurate or erroneous material representation made by
Amerac in this Agreement.
8.3 Notice of Claims; Defense; Settlement. Except as provided
-------------------------------------
hereinafter, no Claim may be indemnified under this Agreement unless the party
requesting indemnification gives notice to the party from whom indemnification
is sought of the Claim for which indemnification is sought on or before the
expiration of two (2) years after the Closing Date; provided, however, that with
respect to claims for indemnification under Sections 8.1(b), 8.1(d), 8.1(e),
8.2(c), and 8.2(d), the party seeking indemnification must give notice to the
party from whom indemnification is sought of the Claim for which indemnification
is sought on or before the expiration of ten (10) days after the expiration of
the statute of limitations applicable to such Claim. Upon the discovery by any
party entitled to indemnification under any provision of this Agreement of facts
giving rise to a Claim for indemnification hereunder, including the receipt by
any such party of notice of any Claim by any third party, the party entitled to
indemnification shall give prompt written notice of any such Claim to the
Selling Shareholders or Amerac, as appropriate, depending upon which of such
parties is obligated to provide the requested indemnification. For purposes of
this Section 8.3, the party giving notice of a Claim and requesting
indemnification shall be referred to as the "indemnified party," and the party
receiving notice of a Claim and from which indemnification is sought shall be
referred to as the "indemnifying party." Each such notice shall set forth the
facts known to the indemnified party pertaining to the claim and shall specify
the manner in which the indemnified party proposes to respond to the claim.
Within ten (10) days of the receipt by the indemnifying party of such notice,
the indemnifying party shall state in writing to the indemnified party: (a)
whether the indemnified party may proceed to respond to the Claim in the manner
set forth in its notice, or (b) whether the indemnifying party shall assume
responsibility for and conduct the negotiation,
40
<PAGE>
defense, or settlement of the Claim, and if so, the specific manner in which the
indemnifying party proposes to proceed (which assumption of responsibility
shall, in no event, be an admission or recognition of the legitimacy of
truthfulness of such Claim). If the indemnifying party assumes control of the
Claim, the indemnified party shall at all times have the right to participate in
the defense thereof and to be represented, at its sole expense, by counsel
selected by it. If the indemnifying party disputes its potential liability to
the indemnified party within such ten-day period, the indemnified party shall be
entitled to assume responsibility for and conduct the negotiation, defense, or
settlement of the Claim. In addition, if the indemnifying party disputes its
potential liability to the indemnified party with respect to such a Claim, and
the parties are unable to resolve their differences, the parties agree to submit
their disagreement to arbitration in accordance with the provisions of Section
2.8. No Claim shall be compromised or settled by either the indemnifying party
or the indemnified party, as applicable, in any manner that might adversely
affect the interest of the other party without the prior written consent of such
other party. As a condition precedent to indemnification under this Agreement,
the indemnified party shall assign to the indemnifying party, and the
indemnifying party shall become subrogated to, all rights, claims, and causes of
action of the indemnified party against third persons arising out of or
pertaining to the matters for which the indemnifying party shall provide
indemnification. The amount of the indemnified party's claim for
indemnification shall be reduced by the amount of any insurance reimbursement
paid to the indemnified party pertaining to the claim.
ARTICLE IX
CONDITIONS TO THE OBLIGATIONS TO CLOSE
--------------------------------------
9.1 Conditions to Amerac Obligations. Notwithstanding any other
--------------------------------
provisions of this Agreement, the obligations of Amerac to consummate the
transactions contemplated herein shall be subject to the fulfillment, prior to
or at the Closing Date, of each of the following conditions precedent, any of
which may be waived by Amerac:
(a) Accuracy of Selling Shareholders' Representations and Warranties.
----------------------------------------------------------------
The representations and warranties of the Selling Shareholders set forth in
Article III shall be true and correct in all material respects as of the Closing
Date, with the same effect as though such representations and warranties had
been made at and as of the Closing Date.
(b) Other Selling Shareholders' Execution of Agreement. At or prior
--------------------------------------------------
to the Closing Date, all persons designated as Other Selling Shareholders on the
signature pages hereto shall have executed and delivered this Agreement.
(c) Performance of Covenants, Agreements and Conditions. Fremont,
---------------------------------------------------
Ridgepointe, and the Selling Shareholders shall have duly performed, complied
with, and satisfied, in all material respects, all covenants, agreements, and
conditions required by this Agreement to be performed, complied with, or
satisfied by them at or prior to the Closing Date.
(d) Officers' Certificates. Amerac shall have received a (i)
----------------------
certificate dated the Closing Date and signed by the President and the Chief
Financial Officer of Fremont, to the effects set forth in Sections 9.1(a) and
(c), (ii) a certificate dated the Closing Date and signed
41
<PAGE>
by the President of Powell, to the effects set forth in Sections 9.1(a) and (c),
(iii) a certificate dated the Closing Date and signed by the President of
Ridgepointe to the effects set forth in Sections 9.1(a) and (c), (iv) a
certificate dated the Closing Date and signed by the President of Kenton, Inc,,
the General Partner of the Partnership, to the effects set forth in Sections
9.1(a) and (c) as such provisions pertain to the Partnership, and (v)
certificates dated the Closing Date and signed by or on behalf of each Other
Selling Shareholder to the effects set forth in Sections 9.1(a) and (c).
(e) Opinion of Counsel for Selling Shareholders. Amerac shall have
-------------------------------------------
received an opinion, dated the Closing Date, of Kirk & Chaney, counsel for the
Selling Shareholders, to the effects set forth in Exhibit G hereto.
---------
(f) No Orders, Etc. There shall not be instituted, pending, or
---------------
threatened any action or proceeding (i) challenging the acquisition of Fremont
or Ridgepointe by Amerac or otherwise seeking to restrain or prohibit the
consummation of the transactions contemplated herein or those described in
Section 1.4, (ii) seeking to impose material damages on Amerac as a result of
such acquisition, or (iii) seeking to prohibit the direct or indirect ownership
or operation by Amerac of all or a material portion of the business or assets of
Fremont or Ridgepointe, or to compel Amerac, Fremont, or Ridgepointe or any of
their subsidiaries to dispose of or hold separate all or a material portion of
the business or assets of Amerac, Fremont, or Ridgepointe and their respective
subsidiaries, that in any such case is reasonably likely to have a material
adverse effect on the business or condition of Fremont, Ridgepointe, or Amerac.
The consummation of the transactions contemplated herein or in Section 1.4 shall
not have been restrained, enjoined, or prohibited by any court or governmental
authority of competent jurisdiction.
(g) Material Adverse Change. Since October 31, 1995, there shall not
-----------------------
have been any material adverse change in the business or condition of Fremont or
Ridgepointe.
(h) Release of Liens Under Credit Agreement. A release of all liens
---------------------------------------
under the Credit Agreement shall have been obtained on terms and conditions
reasonably acceptable to Amerac.
(i) Financing. Amerac shall have obtained, on or before December 22,
---------
1995, a commitment for financing for the transactions contemplated herein on
terms and conditions reasonably acceptable to Amerac.
(j) Consents Under Other Agreements. All consents or approvals
-------------------------------
necessary to permit consummation of the transactions contemplated herein under
any contract, agreement, note, mortgage, indenture, lease or other agreement of
Amerac, Fremont, or Ridgepointe shall have been obtained.
(k) Resignation of Officers and Directors. All members of the boards
-------------------------------------
of directors of, and each executive officer of, Fremont and Ridgepointe shall
have irrevocably tendered their resignations effective as of the Closing Date.
42
<PAGE>
(l) Releases. Amerac shall have received the releases contemplated by
--------
Section 6.5 and Section 6.6 hereof.
(m) Intercompany Transactions. All of the transactions described in
-------------------------
Section 1.4 shall have been consummated.
(n) Initial Purchase Consideration Reductions. The aggregate amounts
-----------------------------------------
on deposit in escrow at the Closing Date pursuant to Sections 2.3, 2.4, and 2.7
of this Agreement shall not exceed the sum of $350,000.00.
9.2 Conditions to the Selling Shareholders' Obligations. Notwithstanding
---------------------------------------------------
any other provisions of this Agreement, the obligation of the Selling
Shareholders to consummate the transactions contemplated herein shall be subject
to the fulfillment, prior to or at the Closing Date, of each of the following
conditions precedent, any of which may be waived by Powell on behalf of the
Selling Shareholders:
(a) Accuracy of Amerac's Representations and Warranties. The
---------------------------------------------------
representations and warranties of Amerac set forth in Article IV shall be true
and correct in all material respects as of the Closing Date with the same effect
as though such representations and warranties had been made at and as of the
Closing Date.
(b) Performance of Covenants, Agreements and Conditions. Amerac shall
---------------------------------------------------
have duly performed, complied with, and satisfied, in all material respects, all
covenants, agreements and conditions required by this Agreement to be performed,
complied with, or satisfied by them at or prior to the Closing Date.
(c) Officers' Certificate. The Selling Shareholders shall have
---------------------
received a certificate dated the Closing Date and signed by the President and
the Chief Financial Officer of Amerac to the effects set forth in Sections
9.2(a) and (b).
(d) Opinion of Counsel for Amerac. The Selling Shareholders shall
-----------------------------
have received an opinion, dated the Closing Date, of Jackson & Walker, L.L.P.,
counsel for Amerac, to the effects set forth in Exhibit H.
---------
(e) No Orders, Etc. The consummation of the transactions contemplated
---------------
herein shall not have been restrained, enjoined, or prohibited by any court or
governmental authority of competent jurisdiction.
(f) Consent Under Credit Agreement. All consents necessary under the
------------------------------
Credit Agreement to permit consummation of the transactions contemplated by this
Agreement shall have been obtained.
(g) Master Operating Agreement. Amerac shall have executed and
--------------------------
delivered the Contract Operations Service Agreement as provided in Section 7.1
hereof.
43
<PAGE>
(h) Deposit. Amerac shall have made the Deposit in accordance with
-------
Section 1.3.
(i) Initial Purchase Consideration Reductions. The aggregate amounts
-----------------------------------------
on deposit in escrow at the Closing Date pursuant to Sections 2.3, 2.4, and 2.7
of this Agreement shall not exceed the sum of $350,000.00.
ARTICLE X
TERMINATION
-----------
10.1 Termination. This Agreement may be terminated and the transactions
-----------
contemplated herein may be abandoned at any time at or prior to the Closing
Date:
(a) by mutual written consent of the Selling Shareholders and Amerac;
(b) by the Selling Shareholders, at their option, if any of the
conditions set forth in Section 9.2 have not been satisfied as provided therein;
(c) by Amerac, at Amerac's option, if any of the conditions set forth
in Section 9.1 have not been satisfied as provided therein; and
(d) by either the Selling Shareholders or Amerac, if
(i) the Closing shall not have occurred by February 15, 1996;
provided, however, that the right to terminate this Agreement under this
clause shall not be available to any party whose failure to fulfill any of
its obligations under this Agreement has been the cause of or resulted in
the failure to consummate the transactions contemplated herein by such
date; or
(ii) there shall be any statute, rule or regulation that makes
consummation of the transactions contemplated herein illegal or otherwise
prohibited or a court of competent jurisdiction or government or
governmental authority shall have issued an order, decree or ruling or
taken any other action restraining, enjoining or otherwise prohibiting the
consummation of the transactions contemplated herein, and such order,
decree, ruling, or other action shall have become final and nonappealable.
10.2 Effect of Termination. The terminating party shall be entitled to all
---------------------
remedies available at law or in equity, including, without limitation, the
remedy of specific performance. If a party to this Agreement resorts to legal
proceedings to enforce this Agreement or any part thereof, the prevailing party
in such proceedings shall be entitled to recover all costs incurred by such
party, including reasonable attorneys' fees, in addition to any other relief to
which such party may be entitled. Upon the termination of this Agreement,
Amerac shall return to Fremont all title, engineering, geological, and
geophysical data, reports, maps, and other information furnished by the Selling
Shareholders, Fremont, or Ridgepointe to Amerac. Upon the
44
<PAGE>
termination of this Agreement, the provisions of Section 5.5 shall survive any
such termination and continue in full force and effect.
ARTICLE XI
MISCELLANEOUS
-------------
11.1 Notices. All notices and communications required or permitted to be
-------
given hereunder shall be in writing and shall be delivered personally, or sent
by bonded overnight courier, or mailed by U.S. Express Mail or by certified or
registered United States Mail with all postage fully prepaid, or sent by prepaid
telegram, or by telex or facsimile transmission (provided any such telegram,
telex, or facsimile transmission is confirmed either orally or by written
confirmation), addressed to the appropriate party at the address for such party
shown below or at such other address as such party shall have theretofore
designated by written notice delivered to the party giving such notice:
(a) If to Powell:
------------
Powell Resources, Inc.
3030 Northwest Expressway, Suite 1602
Oklahoma City, Oklahoma 73112
Attention: Mr. V. Lee Powell
Telephone No.: (405) 943-4581
Facsimile No.: (405) 943-4584
(b) If to the Other Selling Shareholders, Fremont, or Ridgepointe:
-------------------------------------------------------------
c/o Thomas O. Goldsworthy
Fremont Exploration, Inc.
3030 Northwest Expressway, Suite 1602
Oklahoma City, Oklahoma 73112
Telephone No.: (405) 943-4581
Facsimile No.: (405) 943-4584
(c) If to Amerac:
------------
Amerac Energy Corporation
700 Louisiana, Suite 3330
Houston, Texas 77002-2730
Attention: Mr. Jeffrey B. Robinson
Telephone No.: (713) 223-1833
Facsimile No.: (713) 223-5110
Any notice given in accordance herewith shall be deemed to have been
given when delivered to the addressee in person, or delivered to the telegraph
company or transmitted by telex or facsimile transmission, or upon the earlier
of actual receipt of the notice by the
45
<PAGE>
addressee or five (5) days after such notice has either been delivered to a
bonded overnight courier or deposited in the United States Mail, as the case may
be. The parties hereto may change the address, telephone numbers, and facsimile
numbers to which such communications are to be addressed by giving written
notice to the other parties in the manner provided in this Section 11.1.
11.2 Survival. Except for the warranty contained in Section 3.20(a), which
--------
shall not survive the Closing, all representations, warranties, covenants,
agreements, and indemnities of the Selling Shareholders and Amerac under this
Agreement shall survive the Closing and remain in force and effect as provided
in this Section 11.2 or Section 8.3, as applicable, regardless of any
investigation at any time made by or on behalf of the Selling Shareholders or
Amerac or of any information that the Selling Shareholders or Amerac may have
with respect thereto. Such survival does not obligate, however, any Selling
Shareholder or Amerac to make any further representations and warranties after
the Closing Date. Except as provided hereinafter, after the Closing Date, any
assertion by the Selling Shareholders or Amerac that the other party is liable
for the inaccuracy or breach of any representation or warranty, other than the
warranties contained in Sections 3.14 and 3.20(a), must be made in writing by
the party seeking enforcement and must be given to the party against whom
enforcement is sought no later than the expiration of two (2) years after the
Closing Date. Any assertion by Amerac that any Selling Shareholder is liable
for the inaccuracy or breach of the warranty contained in Section 3.14 must be
made by Amerac in writing and must be given to the Selling Shareholders on or
before the expiration of ten (10) days after the expiration of the applicable
statute of limitations on the assessment of the relevant tax. Amerac's sole and
exclusive remedy for any inaccuracy in or breach of the warranty contained in
Section 3.20(a) shall be limited to the provisions of Article II. After the
Closing Date, any assertion by the Selling Shareholders or Amerac that the other
party is liable for a breach or default in the performance by such party of any
material covenant or material agreement of that party contained in this
Agreement must be made in writing by the party seeking enforcement and must be
given to the party against whom enforcement is sought on or before the
expiration of ten (10) days after the expiration of the applicable statute of
limitations pertaining to the relevant breach or default. Notwithstanding the
provisions of this Section 11.2 to the contrary, all matters relating to the
assertion of rights to indemnification under this Agreement shall be governed by
Section 8.3.
11.3 Amendments; No Waivers.
----------------------
(a) Any provision of this Agreement may be amended or waived prior to
the Closing Date if, and only if, such amendment or waiver is in writing and
signed, in the case of an amendment, by all parties hereto, or in the case of a
waiver, by the party against whom the waiver is to be effective.
(b) No failure or delay by any party in exercising any right, power,
or privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
46
<PAGE>
11.4 Successors and Assigns. The provisions of this Agreement shall be
----------------------
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns. No party may assign, delegate, or otherwise transfer
any of its rights or obligations under this Agreement without the consent of the
other parties hereto. This Agreement shall be binding upon and is solely for
the benefit of each of the parties hereto and their respective successors and
assigns, and nothing in this Agreement is intended to confer upon any other
person any rights or remedies of any manner whatsoever under or by reason of
this Agreement.
11.5 Entire Agreement. This Agreement constitutes the entire agreement
----------------
among the parries hereto with respect to the subject matter hereof and
supersedes all other prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof.
11.6 Governing Law. Except to the extent that the provisions of Section
-------------
2.8 call for the application of the laws of another state in an arbitration
conducted pursuant thereto, this Agreement shall be construed in accordance with
and governed by the internal laws of the State of Texas without giving effect to
the principles of conflicts of laws thereof.
11.7 Execution by Fremont and Ridgepointe. Fremont and Ridgepointe have
------------------------------------
joined in the execution of this Agreement for the sole and limited purposes of
evidencing their agreement to perform the covenants contained in Sections 5.1,
5.2, 5.3, 5.4, 5.5, and 6.3. FPC joins in the execution of this Agreement for
the sole and limited purpose of agreeing to accept any assignments of Evaluated
Interests made by Fremont pursuant to Section 2.3.
11.8 Counterparts. This Agreement may be signed in any number of
------------
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument. This Agreement
shall be binding on each party who executes the same, notwithstanding that this
Agreement may not have been executed by all of the parties named herein.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
AMERAC ENERGY CORPORATION
By: /s/ Jeffrey B.Robinson
--------------------------------
Jeffrey B. Robinson
President and Chief
Executive Officer
47
<PAGE>
POWELL RESOURCES, INC.
By: /s/ V. Lee Powell
----------------------------------
V. Lee Powell
President
OTHER SELLING SHAREHOLDERS
By: /s/ THOMAS O. GOLDSWORTHY
----------------------------------
THOMAS O. GOLDSWORTHY
THE LANGSTROTH FAMILY LIMITED I
By: /s/ Thomas O. Goldsworthy
----------------------------------
Thomas O. Goldsworthy
Attorney-in-Fact
JAMES B. TOLLERTON
By: /s/ Thomas O. Goldsworthy
----------------------------------
Thomas O. Goldsworthy
Attorney-in-Fact
FREMONT ENERGY CORPORATION
By: /s/ Thomas O. Goldsworthy
----------------------------------
Thomas O. Goldsworthy
Vice President
RIDGEPOINTE RESOURCES, INC.
By: /s/ Thomas O. Goldsworthy
----------------------------------
Thomas O. Goldsworthy
President
48
<PAGE>
FREMONT PETROLEUM CORPORATION
By: /s/ V. Lee Powell
----------------------------------
V. Lee Powell
Vice President
49
<PAGE>
AMENDMENT NO. 1 TO ACQUISITION AGREEMENT
----------------------------------------
This AMENDMENT NO. 1 TO ACQUISITION AGREEMENT ("Amendment No. 1") is
executed as of January 15, 1996, effective as of January 5, 1996, by AMERAC
ENERGY CORPORATION, a Delaware corporation ("Amerac"), POWELL RESOURCES, INC.,
an Oklahoma corporation ("Powell"), THE LANGSTROTH FAMILY LIMITED I, a Florida
limited partnership (the "Partnership"), THOMAS O. GOLDSWORTHY, and JAMES B.
TOLLERTON (collectively, the "Selling Shareholders"), RIDGEPOINTE RESOURCES,
INC. ("Ridgepointe"), FREMONT ENERGY CORPORATION ("Fremont"), and FREMONT
PETROLEUM CORPORATION ("FPC").
RECITALS:
---------
WHEREAS, pursuant to the Acquisition Agreement dated as of January 5,
1996, between Amerac, the Selling Shareholders, Ridgepointe, Fremont, and FPC
(the "Acquisition Agreement"), the Selling Shareholders agreed to sell to
Amerac, and Amerac agreed to purchase from the Selling Shareholders, all of the
shares of "Fremont Common Stock" not owned by Ridgepointe and all of the shares
of "Ridgepointe Common Stock" (as both of such terms are defined in the
Acquisition Agreement) owned by the Selling Shareholders for the consideration
and on the terms set forth therein (capitalized terms defined in the Acquisition
Agreement having the same meanings when used in this Amendment No. 1 unless
expressly stated otherwise); and
WHEREAS, the parties hereto desire to amend the Acquisition Agreement
in certain respects;
NOW, THEREFORE, for the consideration recited in the Acquisition
Agreement and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Amerac, the Selling Shareholders, Ridgepointe,
Fremont, and FPC hereby agree that:
1. Section 1.4 of the Acquisition Agreement is amended by deleting
therefrom the last sentence thereof and by substituting therefor the following
provision:
At the Closing, the Selling Shareholders shall provide to Amerac
documentation reflecting the full payment and/or cancellation of all
such intercompany accounts and the consummation of all such
transactions.
2. The reference to "Section t.6" contained in Section 5.6(c) of the
Acquisition Agreement is corrected to read "Section 5.6".
3. Section 7.2 of the Acquisition Agreement is deleted in its
entirety, and the following provision is substituted therefor:
<PAGE>
7.2 Federal and State Income Tax Refunds. If Fremont receives a
------------------------------------
refund in connection with its federal or state income tax returns for the
fiscal years ended March 31, 1993, 1994, 1995, or 1996, Amerac agrees to
pay the cash equivalent of any such refund, promptly after receipt, to the
Selling Shareholders as an additional upward adjustment to the Initial
Purchase Consideration.
4. Section 9.1(b) of the Acquisition Agreement is deleted in its
entirety. No renumbering or relettering with respect to any of the provisions
of Section 9.1 of the Acquisition Agreement shall result from the deletion of
this provision.
5. The signature blocks appearing on page 48 of the Acquisition
Agreement are amended as follows:
(a) the signature block for The Langstroth Family Limited I is
moved from its current position following the signature block for Thomas O.
Goldsworthy to the position immediately following the signature block for
Powell Resources, Inc., and preceding the caption "Other Selling
Shareholders"; and
(b) the phrase "Other Parties" is inserted between the signature
block for James B. Tollerton and the signature block for Fremont Energy
Corporation.
The purpose of the amendments contained in this Paragraph 5 is to clarify that,
for purposes of the Acquisition Agreement, the term "Other Selling Shareholders"
refers to Thomas O. Goldsworthy and James B. Tollerton only.
6. Amerac, the Selling Shareholders, Ridgepointe, Fremont, and FPC
do hereby adopt, ratify, and confirm the Acquisition Agreement as amended hereby
and declare the Acquisition Agreement, as so amended, to be in full force and
effect.
IN WITNESS WHEREOF, Amerac, the Selling Shareholders, Ridgepointe,
Fremont, and FPC have executed this Amendment No. 1 as of the date first above
written.
AMERAC ENERGY CORPORATION
By: /s/ Jeffrey B. Robinson
-------------------------------
Jeffrey B. Robinson
President and Chief
Executive Officer
2
<PAGE>
POWELL RESOURCES, INC.
By: /s/ V. Lee Powell
--------------------------------
V. Lee Powell
President
THE LANGSTROTH FAMILY LIMITED I
By: /s/ Thomas O. Goldsworthy
--------------------------------
Thomas O. Goldsworthy
Attorney-in-Fact
OTHER SELLING SHAREHOLDERS
/s/ THOMAS O. GOLDSWORTHY
-----------------------------------
THOMAS O. GOLDSWORTHY
JAMES B. TOLLERTON
By: /s/ Thomas O. Goldsworthy
--------------------------------
Thomas O. Goldsworthy
Attorney-in-Fact
OTHER PARTIES
FREMONT ENERGY CORPORATION
By: /s/ Thomas O. Goldsworthy
--------------------------------
Thomas O. Goldsworthy
Vice President
3
<PAGE>
RIDGEPOINTE RESOURCES, INC.
By: /s/ Thomas O. Goldsworthy
--------------------------------
Thomas O. Goldsworthy
President
FREMONT PETROLEUM CORPORATION
By: /S/ V. Lee Powell
--------------------------------
V. Lee Powell
Vice President
4
<PAGE>
EXHIBIT 10-10
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement, dated as of the 16th day of
January, 1996 (this "Agreement"), is by and among Amerac Energy Corporation, a
Delaware corporation (the "Issuer"), and Powell Resources, Inc., an Oklahoma
corporation, The Langstroth Family Limited I, a Florida limited partnership,
Thomas O. Goldsworthy and James B. Tollerton (collectively the "Sellers" and
individually a "Seller").
WHEREAS, as an inducement to the Sellers to cause them to enter into
that certain Acquisition Agreement dated as of January 5, 1996 (the "Acquisition
Agreement"), Issuer agreed to enter into this Agreement; and
WHEREAS, under the Acquisition Agreement, Issuer is required to duly
execute and deliver this Agreement;
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Securities Subject
(a) Definitions.
Capitalized terms used but not defined herein shall have the meanings
ascribed thereto in the Acquisition Agreement. As used herein, the following
terms have the indicated meanings, unless the context otherwise requires:
"Act" means the Securities Act of 1933, as amended.
"Commission" means the Securities and Exchange Commission.
"Holder" means any Seller, as the recipient of any Registrable
Security.
"Registrable Securities" means the Amerac Shares issued to the Sellers
pursuant to the Acquisition Agreement, and any securities issued as a
distribution with respect thereto or in exchange therefor.
"Selling Holder" means a Holder who is selling Registrable Securities
pursuant to a registration statement.
(b) Registrable Securities. Any Registrable Security will cease to be
a Registrable Security when (i) a registration statement covering such
Registrable Security has been declared effective by the Commission and it has
been disposed of pursuant to such effective registration statement, (ii) it is
distributed to the public pursuant to Rule 144 (or any similar or
<PAGE>
successor rule or provision then in force) under the Act, or (iii) it may be
otherwise transferred without restriction under Rule 144(k) (or any similar
successor rule or provision then in force.
2. Shelf Registration.
(a) At any time after the date one year after the date of this
Agreement and before the date three years after the date of this Agreement, one
or more of Holders of Registrable Securities holding an aggregate of a majority
of the Registrable Securities may request in writing that the Issuer file a
"shelf" registration statement on an appropriate form pursuant to Rule 415 (or
any successor provision that may be adopted by the Commission) under the Act
covering the registration of all, or any portion in excess of 50%, of the
Registrable Securities (the "Shelf Registration"). Such Holder or Holders shall
provide with such request an opinion of counsel that the amount of Registrable
Securities to be offered for public sale in the aggregate may not be sold within
a period of 90 days of the date of such request in accordance with the
provisions of Rule 144 promulgated under the Act. Within five business days of
receipt of such request, the Issuer shall give notice of such request to all of
the remaining Holders of Registrable Securities of its receipt of such request
from such Holder or Holders. Upon the written request of any such Holder
delivered to the Issuer within 10 days after receipt from the Issuer of such
notification (the "Determination Date"), the Issuer will use its best efforts to
cause such of the Registrable Securities as may be requested by any such Holder
(including the Holder or Holders of Registrable Securities giving the initial
request to register hereunder) to be registered under the Act in accordance with
the terms of this Section 2.
(b) Issuer agrees to use its best efforts to file with the Commission
within 30 days of the Determination Date the Shelf Registration, have the Shelf
Registration declared effective as soon as practicable after the filing thereof
and to keep the Shelf Registration continuously effective until three years
after the date of this Agreement or until there are no more Registrable
Securities, whichever shall occur first. Issuer further agrees to supplement or
amend the Shelf Registration, (i) if required by the Act or (ii) to update
information with respect to the Holders or the plan of distribution if requested
by the Holders of a majority of the Registrable Securities, and Issuer agrees to
furnish to the Holders copies of any such supplement or amendment promptly after
its being filed with the Commission. The Holders of Registrable Securities
registered in the Shelf Registration shall pay one-half of the Registration
Expenses (as hereinafter defined) in connection with the Shelf Registration,
whether or not it becomes effective. Issuer will make available to its
securityholders (i) as soon as reasonably practicable, from time to time, for
three years, statements of operations covering each successive three-month
period, commencing on the first day of the fiscal quarter next succeeding the
effective date of such Shelf Registration and (ii) as soon as reasonably
practicable after 12 months have elapsed from such date, a statement of
operations covering a period of 12 months, which earnings statements shall
satisfy the provisions of Section 11(a) of the Act.
(c) The Holders of a majority of the Registrable Securities, in their
sole discretion, shall determine whether to proceed with, withdraw from or
terminate the Shelf Registration. If the Shelf Registration is withdrawn or
terminated pursuant to the foregoing clause and the Holders pay all Registration
Expenses incurred by Issuer in connection with the
2
<PAGE>
terminated or withdrawn registration statement, such registration statement
shall not constitute the Shelf Registration pursuant to this Section 2.
(d) In the event Issuer grants piggy-back registration rights to other
securityholders and such securityholders elect to have shares of Amerac Common
Stock registered in the Shelf Registration, the amount of Registration Expenses
payable by the Holders pursuant to paragraph 2(b) shall be reduced to an amount
equal to the product of (i) one-half of the Registration Expenses and (ii) the
percentage of the total number shares of Amerac Common Stock being registered in
the Shelf Registration represented by the Registrable Securities being
registered on behalf of the Holders.
3. Piggy-Back Registration
(a) If at any time beginning on the date hereof and ending three years
after such date the Issuer proposes to file a registration statement under the
Act with respect to any offering of any securities of Issuer (other than a
registration statement on Form S-4 or S-8 (or any substitute form for comparable
purposes that may be adopted by the Commission) or a registration statement
filed in connection with an exchange offer or an offering of securities solely
to Issuer's existing securityholders), then Issuer shall in each such case give
written notice of such proposed filing to the Holders of Registrable Securities
as soon as practicable (but in no event less than 10 days before the anticipated
filing date), and such notice shall offer such Holders the opportunity to
register such number of shares of Registrable Securities for sale pursuant to
such offering as each such Holder may request.
(b) Issuer shall use its best efforts to cause the managing
underwriter or underwriters of a proposed underwritten offering to permit the
Registrable Securities requested to be included in the registration statement
for such offering to be included on the same terms and conditions as any similar
securities of Issuer or of any other selling securityholders included therein.
Notwithstanding the foregoing, if the managing underwriter or underwriters of
such offering determines that because of the size of the offering which the
Holders of such Registrable Securities, the Issuer, and such other persons
intend to make, the success of the offering of the Issuer's securities could
reasonably be expected to be materially and adversely affected by inclusion of
the Registrable Securities requested to be included, then the managing
underwriters shall provide written notice of such determination to the Holders
of the Registrable Securities, and the amount of securities to be offered for
the accounts of Holders shall be reduced pro rata among the Holders to the
extent necessary to reduce the total amount of securities to be included in such
offering to the amount recommended by such managing underwriter or underwriters;
provided that if securities are being offered for the account of other persons
or entities other than Issuer, then the proportion by which the amount of
securities intended to be offered by Holders is reduced shall not exceed the
proportion by which the amount of securities intended to be offered by such
other persons or entities other than Issuer is reduced. Issuer will bear all
Registration Expenses in connection with a piggy-back registration.
(c) As a condition to a Holder's participation in any underwriting
with respect to Issuer pursuant to this Section 3, the Holder shall be required
to enter into customary
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<PAGE>
agreements (including an underwriting agreement in customary form) and take such
other actions as are reasonably required by the underwriters in order to include
the Registrable Securities for sale pursuant to such underwritten offering.
(d) Issuer represents and warrants that, as of the date hereof, no
other securityholder of Issuer has been granted "piggy-back" registration
rights.
4. Holdback Agreements
(a) Restrictions on Public Sale Holder of Registrable Securities. To
the extent not inconsistent with applicable law, each Holder whose securities
are included in a registration statement pursuant to Section 3 agrees not to
effect any public sale or distribution of the issue being registered or a
similar security of Issuer, or any securities convertible into or exchangeable
or exercisable for such securities, including a sale pursuant to Rule 144 under
the Act, during the fourteen (14) days prior to, and during the ninety-day
period beginning on, the effective date of such registration statement (except,
in each case, as part of such registration), if and to the extent requested by
the managing underwriter or underwriters.
(b) Postponement of Sale under Shelf Registration Statement. Each
Holder agrees not to effect any public sale or distribution pursuant to any
Shelf Registration pursuant to this Agreement at any time that Issuer shall have
advised the Holders in writing that the sale by such Holders pursuant to such
Shelf Registration could reasonably be expected to (i) adversely affect, or
require the premature disclosure of any proposed acquisition, disposition or
other transaction involving Issuer or (ii) materially and adversely affect any
proposed underwritten public offering of Amerac Common Stock if the managing
underwriter thereof shall have advised the Holders that any such sales could
reasonably be expected to jeopardize the success of the offering; provided,
however, in each such case Issuer may not restrict any such sales unless at
least five days prior written notice is provided to each Holder and provided
further Issuer may not restrict sales by Holders (x) for a total of more than 90
days during any one-year period or (y) for more than 60 consecutive days after
the date of the prospectus for any such underwritten public offering.
5. Registration Procedures
Whenever Registrable Securities are required to be registered pursuant
to Section 3 hereof, Issuer will use its best efforts to effect the registration
and the sale of such Registrable Securities in accordance with the intended
method of disposition thereof as quickly as practicable, and in connection with
any such request and with the Shelf Registration, Issuer will, as expeditiously
as possible:
(a) (i) prior to filing a registration statement or prospectus or any
amendments or supplements thereto, furnish to one counsel selected by the
Holders of a majority of the Registrable Securities covered by such registration
statement copies of all such documents proposed to be filed, which documents
will be subject to the review of such counsel, (ii) as soon as reasonably
possible, furnish to each Selling Holder, prior to filing a registration
statement,
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<PAGE>
copies of such registration statement as proposed to be filed, and thereafter
furnish to such Selling Holder such number of copies of such registration
statement, each amendment and supplement thereto (in each case including all
exhibits thereto), the prospectus included in such registration statement
(including each preliminary prospectus) and such other documents as such Selling
Holder may reasonably request in order to facilitate the disposition of the
Registrable Securities owned by such Selling Holder, and (iii) after the filing
of the registration statement, promptly notify each Selling Holder of
Registrable Securities covered by such registration statement of any stop order
issued or threatened by the Commission and take all reasonable actions required
to prevent the entry of such stop order or to remove it if entered;
(b) prepare and file with the Commission such amendments and post-
effective amendments to the registration statement as may be necessary to keep
the registration statement effective for (i) a period of not less than nine (9)
months in the case of a registration statement on Forms S-1 or S-2, or (ii) an
indefinite period in the case of a registration statement on Form S-3 (or such
shorter period which will terminate when all Registrable Securities covered by
such registration statement have been sold or withdrawn, but not prior to the
expiration of the 25-day period referred to in Section 4(3) of the Act and Rule
174 thereunder, if applicable); cause the prospectus to be supplemented by any
required prospectus supplement, and as so supplemented to be filed pursuant to
Rule 424 under the Act; and comply with the provisions of the Act applicable to
it with regard to the disposition of all securities covered by such registration
statement during the applicable period in accordance with the intended methods
of disposition by the sellers thereof set forth in such registration statement
or supplement to the prospectus;
(c) if requested by the managing underwriter or underwriters or any
Holder of Registrable Securities covered by the registration statement, promptly
incorporate in a prospectus supplement or post-effective amendment such
information as the managing underwriter or underwriters or such holder, as the
case may be, reasonably requested to be included therein, including, without
limitation, information with respect to the number of Registrable Securities
being sold by such holder to an underwriter or underwriters, the purchase price
being paid therefor by such underwriter or underwriters and with respect to any
other terms of the underwritten offering of the Registrable Securities to be
sold in such offering, and promptly make all required filings of such prospectus
supplement or post-effective amendment;
(d) enter into such customary agreements (including an underwritten
agreement in customary form with provisions as may be reasonably required by the
managing underwriter retained by the holder of Registrable Securities) and take
all such other actions as the holders of a majority of the Registrable
Securities being sold or the managing underwriter or underwriters retained by
holders participating in an underwritten public offering, if any, reasonably
request in order to expedite or facilitate the disposition of such Registrable
Securities in each case to the same extent as if all the securities then being
offered were for the account of the Company;
(e) use its best efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such jurisdictions as
any Selling Holder reasonably requests and do any and all other acts and things
which may be reasonably necessary or advisable to enable such Selling Holder to
consummate the disposition in such jurisdictions of the
5
<PAGE>
Registrable Securities owned by such Selling Holder; provided that Issuer will
not be required to (i) qualify generally to do business in any jurisdiction
where it would not otherwise be required to qualify but for this paragraph (b),
(ii) subject itself to taxation or qualification in any such jurisdiction or
(iii) consent to general service of process in any such jurisdiction;
(f) notify each Selling Holder of such Registrable Securities, at any
time when a prospectus relating thereto is required to be delivered under the
Act, of the occurrence of an event requiring the preparation of a supplement or
amendment to such prospectus so that, as thereafter delivered to the purchasers
of such Registrable Securities, such prospectus will not contain an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading and
promptly make available to each Selling Holder any such supplement or amendment;
(g) enter into customary agreements (including an underwriting
agreement in customary form) and take such other actions as are reasonably
required in order to expedite or facilitate the disposition of such Registrable
Securities;
(h) make available for inspection on a confidential basis by any
Selling Holder of such Registrable Securities, any underwriter participating in
any disposition pursuant to such registration statement, and any attorney,
accountant or other professional retained by any such Selling Holder or
underwriter (collectively, the "Inspectors"), all financial and other records,
pertinent corporate documents and properties of Issuer and its subsidiaries
(collectively, the "Records") as shall be reasonably necessary to enable them to
exercise their due diligence responsibility, and cause Issuer's and its
subsidiaries' officers, directors and employees to supply all information
reasonably requested by any such Inspector in connection with such registration
statement;
(i) in the event such sale is pursuant to an underwritten offering,
use its best efforts to obtain a comfort letter or comfort letters from Issuer's
independent public accountants in customary form and covering such matters of
the type customarily covered by comfort letters as the Selling Holders of a
majority in aggregate principal amount or number of shares, as the case may be,
of the Registrable Securities being sold or the managing underwriter reasonably
request and an opinion of outside counsel to Issuer covering such matters as are
customarily covered by such opinions;
(j) otherwise use its best efforts to comply with all applicable rules
and regulations of the Commission, and make available to its securityholders, as
soon as reasonably practicable, an earnings statement covering a period of 12
months, beginning within three months after the effective date of the
registration statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Act; and
(k) use its best efforts to cause all such Registrable Securities to
be listed on each securities exchange on which the Common Stock of Issuer is
then listed.
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<PAGE>
Issuer may require each Selling Holder of Registrable Securities as to
which any registration is being effected to furnish to Issuer such information
regarding the distribution of such Registrable Securities as Issuer may from
time to time reasonably request in writing and such other information as may be
legally required in connection with such registration.
Each Selling Holder agrees that, upon receipt of any notice from
Issuer of the happening of any event of the kind described in Section 5(c)
hereof, such Selling Holder will forthwith discontinue disposition of
Registrable Securities pursuant to the registration statement covering such
Registrable Securities until such Selling Holder's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 5(c) hereof, and, if
so directed by Issuer, such Selling Holder will deliver to Issuer (at Issuer's
expense) all copies, other than permanent file copies, of the prospectus
covering such Registrable Securities current at the time of receipt of such
notice. In the event Issuer shall give any such notice, Issuer shall extend the
period during which such registration statement shall be maintained effective
(including the period referred to in Section 2(b) hereof) by the number of days
during the period from and including the date of the giving of such notice
pursuant to Section 5(c) hereof to and including the date when each Selling
Holder of Registrable Securities covered by such registration statement shall
have received the copies of the supplemented or amended prospectus contemplated
by Section 5(c) hereof.
6. Registration Expenses
Except as provided in Section 2(b) hereof, all expenses incident to
Issuer's performance of or compliance with this Agreement, including without
limitation all registration and filing fees, fees and expenses of compliance
with securities or blue sky laws (including reasonable fees and disbursements of
counsel in connection with blue sky qualifications of the Registrable
Securities), printing expenses, messenger and delivery expenses, the fees and
expenses incurred in connection with the listing of the securities to be
registered on any securities exchanges and fees and disbursements of counsel for
Issuer and its independent certified public accountants (including the expenses
of any special audit or comfort letters required by or incident to such
performance), securities acts liability insurance (if Issuer elects to obtain
such insurance) and the reasonable fees and expenses of any special experts
retained by Issuer in connection with such registration, fees and expenses of
other persons retained by Issuer (all such expenses being herein called
"Registration Expenses"), will be borne by Issuer. Registration Expenses shall
not include the fees and expenses of any counsel for the Holders, any
underwriting discounts, commissions, or similar charges attributable to the sale
of Registrable Securities or any other expenses of the Holders, all of which
shall be paid by the Holders.
7. Indemnification; Contribution
(a) Indemnification by Issuer. Issuer agrees to indemnify and hold
harmless each Selling Holder, its officers, directors, partners and agents and
each person, if any, who controls such Selling Holder within the meaning of
Section 15 of the Act or Section 20 of the Securities Exchange Act of 1934, as
amended, from and against any and all losses, claims, damages (whether in
contract, tort or otherwise), liabilities and expenses (including reasonable
7
<PAGE>
costs of investigation) whatsoever (as incurred or suffered) arising out of or
based upon any untrue statement or alleged untrue statement of a material fact
contained in any registration statement or prospectus relating to the
Registrable Securities or in any amendment or supplement thereto or in any
preliminary prospectus, or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages, liabilities or expenses arise out of, or are based
upon, any such untrue statement or omission or allegation thereof based upon
information furnished in writing to Issuer by such Selling Holder or on such
Selling Holder's behalf expressly for use therein. Issuer also agrees to
indemnify any underwriters of the Registrable Securities, their officers,
partners and directors and each person who controls such underwriters on
substantially the same basis as that of the indemnification of the Selling
Holders provided in this Section 7 or such other indemnification customarily
obtained by underwriters at the time of offering.
(b) Conduct of Indemnification Proceedings. If any action or
proceeding (including any governmental investigation) shall be brought or
asserted against any Selling Holder (or its officers, directors, partners or
agents) or any person controlling any such Selling Holder in respect of which
indemnity may be sought from Issuer, Issuer shall, at its expense, assume the
defense thereof, including the employment of counsel reasonably satisfactory to
such Selling Holder. Such Selling Holder or any controlling person of such
Selling Holder shall have the right to employ separate counsel in any such
action and to participate in the defense thereof, but the fees and expenses of
such counsel shall be at the expense of such Selling Holder or such controlling
person unless (i) Issuer has agreed to pay such fees and expenses or (ii) the
named parties to any such action or proceeding (including any impleaded parties)
include both such Selling Holder or such controlling person and Issuer, and such
Selling Holder or such controlling person shall have been advised by counsel
that there may be one or more legal defenses available to such Selling Holder or
such controlling person which are different from or additional to those
available to Issuer (in which case, if such Selling Holder or such controlling
person notifies Issuer in writing that it elects to employ separate counsel at
the expense of Issuer, Issuer shall not have the right to assume the defense of
such action or proceeding on behalf of such Selling Holder or such controlling
person; it being understood, however, that Issuer shall not, in connection with
any one such action or proceeding or separate but substantially similar or
related actions or proceedings in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the fees and expenses of
more than one separate firm of attorneys (together with appropriate local
counsel) at any time for all the Selling Holders and such controlling persons,
which firm shall be designated in writing by a majority of the Selling Holders).
Issuer shall not be liable for any settlement of any such action or proceeding
effected without Issuer's written consent, but if settled with its written
consent, or if there be a final judgment no longer subject to appeal for the
plaintiff in any such action or proceeding, Issuer agrees to indemnify and hold
harmless such Selling Holder and such controlling person from and against any
loss or liability (to the extent stated above) by reason of such settlement or
judgment.
(c) Indemnification by Holders of Registrable Securities. Each
Selling Holder agrees, severally but not jointly, to indemnify and hold harmless
Issuer, its directors and officers and each person, if any, who controls Issuer
within the meaning of either Section 15 of the Act
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<PAGE>
or Section 20 of the Securities Exchange Act of 1934, as amended, to the same
extent as the foregoing indemnity from Issuer to such Selling Holder, but only
with respect to information furnished in writing by such Selling Holder or on
such Selling Holder's behalf expressly for use in any registration statement or
prospectus relating to the Registrable Securities, or any amendment or
supplement thereto, or any preliminary prospectus. In case any action or
proceeding shall be brought against Issuer or its directors or officers, or any
such controlling person, in respect of which indemnity may be sought against
such Selling Holder, such Selling Holder shall have the rights and duties given
to Issuer, and Issuer or its directors or officers or such controlling person
shall have the rights and duties given to such Selling Holder, by the preceding
paragraph. Each Selling Holder also agrees to indemnify and hold harmless
underwriters of the Registrable Securities, their officers and directors and
each person who controls such underwriters on substantially the same basis as
that of the indemnification of Issuer provided in this Section 7.
(d) Contribution. If the indemnification provided for in this Section
7 is unavailable to Issuer, the Selling Holders or the underwriters in respect
of any losses, claims, damages, liabilities or judgments referred to herein,
then each such indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities and judgments (i) as
between Issuer and the Selling Holders on the one hand and the underwriters on
the other, in such proportion as is appropriate to reflect the relative benefits
received by Issuer and the Selling Holders on the one hand and the underwriters
on the other from the offering of the Registrable Securities, or if such
allocation is not permitted by applicable law, in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of Issuer and the Selling Holders on the one hand and of the underwriters
on the other in connection with the statements or omissions which resulted in
such losses, claims, damages, liabilities or judgments, as well as any other
relevant equitable considerations and (ii) as between Issuer, on the one hand,
and each Selling Holder on the other, in such proportion as is appropriate to
reflect the relative fault of Issuer and of each Selling Holder in connection
with such statements or omissions, as well as any other relevant equitable
considerations. The relative benefits received by Issuer and the Selling
Holders on the one hand and the underwriters on the other shall be deemed to be
in the same proportion as the total proceeds from the offering (net of
underwriting discounts and commissions but before deducting expenses) received
by Issuer and the Selling Holders bear to the total underwriting discounts and
commissions received by the underwriters, in each case as set forth in the table
on the cover page of the prospectus. The relative fault of Issuer and the
Selling Holders on the one hand and of the underwriters on the other shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by Issuer and the Selling
Holders or by the underwriters. The relative fault of Issuer on the one hand
and of each Selling Holder on the other shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by such party, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
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Issuer and the Selling Holders agree that it would not be just and
equitable if contribution pursuant to this Section 7(d) were determined by pro
rata allocation (even if the underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities, or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7(d), no underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Registrable Securities underwritten by it and distributed to
the public were offered to the public exceeds the amount of any damages which
such underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission, and no Selling Holder
shall be required to contribute any amount in excess of the amount by which the
total price at which the Registrable Securities of such Selling Holder were
offered to the public exceeds the amount of any damages which such Selling
Holder has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. Each Selling Holder's obligation to contribute is
several in the proportion that the proceeds of the offering received by such
Selling Holder bears to the total proceeds of the offering, and not joint.
(e) Limitation of Liability. In no event shall any Selling Holder be
liable under this Section 7 or otherwise in respect of any offering for amounts
in excess of the net proceeds received by such Selling Holder from the sale of
Registrable Securities in such offering.
8. Participation in Underwritten Registrations
No person may participate in any underwritten registration hereunder
unless such person (a) agrees to sell such person's securities on the basis
provided in any underwriting arrangements approved by the persons entitled
hereunder to approve such arrangements and (b) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements and this Agreement.
9. Rule 144.
Issuer covenants that it will file any reports required to be filed by
it under the Act and the Securities Exchange Act of 1934, as amended, and that
it will take such further action as any Holder may reasonably request, all to
the extent required from time to time to (i) maintain its eligibility to use
Form S-3 under the Act to register the Registrable Securities and (ii) enable
Holders to sell Registrable Securities without registration under the Act within
the limitation of the exemptions provided by (a) Rule 144 under the Act, as such
Rule may be amended from time to time, or (b) any similar rule or regulation
hereafter adopted by the Commission. Upon the
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<PAGE>
request of any Holder, Issuer will deliver to such Holder a written statement as
to whether it has complied with such requirements.
10. Transfer of Registration Rights
The registration rights provided to the Holders of the Registrable
Securities under Sections 2 and 3 hereof may be transferred in whole or in part
to any other person in connection with a transfer of all or any portion of
Registrable Securities that complies with the Act and any applicable state
securities or blue sky laws. Any such transferee of Registrable Securities who
is also a transferee of the registration rights provided under Sections 2 and 3
hereof shall be a Holder of Registrable Securities within the meaning of this
Agreement and shall have the rights as such hereunder.
11. Miscellaneous
(a) Binding Effect. Unless otherwise provided herein, the provisions
of this Agreement shall be binding upon and accrue to the benefit of the parties
hereto and their respective heirs, legal representatives, transferees,
successors and assigns.
(b) Amendment. This Agreement may be amended or terminated only by a
written instrument signed by Issuer and the holders of a majority of the
Registrable Securities.
(c) Applicable Law. The internal laws of the State of Texas shall
govern the interpretation, validity and performance of the terms of this
Agreement.
(d) Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given when delivered personally or when received
if sent by registered or certified mail, return receipt requested, or by
facsimile transmission to the parties at the following addresses (or at such
other address as a party may specify by like notice):
(i) If to Powell Resources, Inc.:
----------------------------
Powell Resources, Inc.
3030 Northwest Expressway, Suite 1602
Oklahoma City, Oklahoma 73112
Attention: Mr. V. Lee Powell
Telephone No.: (405) 943-4581
Facsimile No.: (405) 943-4584
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(ii) If to any other Seller:
----------------------
c/o Thomas O. Goldsworthy
Fremont Exploration, Inc.
3030 Northwest Expressway, Suite 1602
Oklahoma City, Oklahoma 73112
Telephone No.: (405) 943-4581
Facsimile No.: (405) 943-4584
(iii) If to Amerac Energy Corporation:
-------------------------------
Amerac Energy Corporation
700 Louisiana, Suite 3330
Houston, Texas 77002-2730
Attention: Mr. Jeffrey B. Robinson
Telephone No.: (713) 223-1833
Facsimile No.: (713) 223-5110
(e) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one instrument.
(f) Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants, and
restrictions of this Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.
AMERAC ENERGY CORPORATION
By: /s/ Jeffrey B. Robinson
----------------------------------------
Jeffrey B. Robinson
President and Chief Executive Officer
POWELL RESOURCES, INC.
By: /s/ V. Lee Powell
----------------------------------------
V. Lee Powell
President
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THE LANGSTROTH FAMILY LIMITED I
By: /s/ Thomas O. Goldsworthy
----------------------------------------
Thomas O. Goldsworthy
Attorney-in-Fact
/s/ THOMAS O. GOLDSWORTHY
----------------------------------------
THOMAS O. GOLDSWORTHY
JAMES B. TOLLERTON
By: /s/ Thomas O. Goldsworthy
----------------------------------------
Thomas O. Goldsworthy
Attorney-in-Fact
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EXHIBIT 10-11
ASSIGNMENT, CONVEYANCE AND BILL OF SALE
---------------------------------------
THIS ASSIGNMENT, CONVEYANCE AND BILL OF SALE (hereinafter referred to as
"this Assignment"), dated effective as of December 1, 1995 at 7:00 a.m. at the
location of the properties (hereinafter referred to as the "Effective Time"), is
from AMERAC ENERGY CORPORATION, formerly known as Wolverine Exploration Company,
a Delaware corporation (hereinafter referred to as "Assignor"), the address of
which is 700 Louisiana, Suite 3330, Houston, Texas 77002-2730, to MULL DRILLING
COMPANY, INC., a Kansas corporation (hereinafter referred to as "Assignee"), the
address of which is 221 North Main Street, Suite 300, Wichita, Kansas 67202.
For Ten Dollars ($10.00) and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by Assignor, Assignor
has transferred, granted bargained, sold, conveyed and assigned, and does hereby
transfer, grant, bargain, sell, convey and assign to Assignee all of Assignor's
right, title and interest of any and every nature whatsoever in and to the
following (all of which are hereinafter collectively referred to as the
"Properties"):
A. The Oil and Gas Leases described in Exhibit "A" attached hereto and
made a part hereof (hereinafter referred to as the "Leases"), insofar and only
insofar as the Leases cover the lands described in Exhibit "A" (hereinafter
referred to as the "Lands");
B. All agreements affecting the Leases insofar as they cover the Lands,
including, but not limited to, all unit agreements including the Unit Agreement
for the Northwest Arapahoe Unit, unit operating agreements including the Unit
Operating Agreement for the Northwest Arapahoe Unit, operating agreements,
farmout agreements, assignments, gas sale contracts, gas processing contracts,
and all other agreements, surface leases, permits, rights-of-ways, easements,
licenses and authorizations in any way relating the Leases insofar as they cover
the Lands.
C. All wells located on the Lands or on lands pooled, communitized or
unitized therewith, together with the personal property, fixtures, improvements
and other property, whether real, personal or mixed, on, appurtenant to or used
or obtained by Assignor in connection with such wells or with the production
therefrom.
D. All oil, gas, casinghead gas, condensate, distillate, liquid
hydrocarbons, gaseous hydrocarbons, products refined and manufactured therefrom,
helium, other minerals, and the accounts and proceeds from the sale of all of
the foregoing to the extent that such production is produced from the Lands or
from lands pooled, communitized or unitized therewith after the Effective Time.
TO HAVE AND TO HOLD the Properties unto Assignee and its successors and
assigns forever.
This Assignment is made and accepted expressly subject to the following:
1. All obligations with respect to the maintenance and daily operation of
the Properties, including any ad valorem, production, severance, excise or other
similar taxes and assessments (other than taxes measured by the income or
profits of Assignor) shall be apportioned between Assignor Assignee as of the
Effective Time. Notwithstanding any other provision contained herein, all such
taxes based on or measured by the ownership of the Properties during calendar
year 1994, the production from the Properties during calendar year 1994 or the
receipt of proceeds from the Properties during calendar year 1994 shall remain
the responsibility of Assignor; and all such taxes based on or measured by the
ownership of the Properties during calendar year 1995, the production from the
Properties during calendar year 1995 or the receipt of proceeds from the
Properties during calendar year 1995
<PAGE>
shall be prorated between Assignor and Assignee as of the Effective Time.
2. Assignor warrants to Assignee, and its successors and assigns, that
Assignor's title to the Properties is free and clear of all liens, encumbrances,
burdens, claims and defects of title arising by, through or under Assignor, and
that Assignor has not previously transferred the Properties.
3. Assignor hereby transfers and quitclaims to Assignee, and its
successors and assigns, to the extent to transferable, the benefit of and the
right to enforce the covenants and warranties, if any, which Assignor is
entitled to enforce with respect to the Properties against Assignor's
predecessors in title to the Properties.
4. Assignor represents and warrants to Assignee that:
(a) Assignor is duly incorporated and existing under the laws of the
State of Delaware and is duly authorized and qualified to transact business
in the State of Colorado; all franchise taxes due from Assignor have been
paid; Assignor is in good standing in each such jurisdiction; and Assignor
has all requisite power and authority, corporate or otherwise, to conduct
its business and to own the Properties.
(b) Assignor has all requisite power and authority to execute and
deliver, and to perform all its obligations under, this Assignment and all
other documents and instruments executed in connection herewith, and the
execution and delivery by Assignor of this Assignment and all other
documents contemplated hereby or referred to herein, and the performance by
Assignor of the promises, covenants and the agreements herein made by
Assignor, will not be in violation of its charter, by-laws or any agreement
or indenture to which Assignor is subject or by which it is bound.
(c) The execution and delivery by Assignor of this Assignment and all
other documents contemplated hereby or referred to herein have been duly
authorized by all necessary corporate action and do not and will not: (I)
require any consent or approval of any of its stockholders, (ii) violate
its charter or by-laws, or (iii) violate provisions of any law, rule,
regulation, order, writ, judgment, injunction, decree, determination or
award presently in effect having applicability to it.
(d) No authorization, consent, approval, license, exemption of or
filing or registration with any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign,
is or will be necessary to the valid execution, delivery or performance by
Assignor of this Assignment or any other document contemplated hereby or
referred to herein, other than approval by the Bureau of Land Management of
the Assignment of the Federal Oil and Gas Lease.
(e) This Assignment constitutes the legal, valid and binding
obligation of Assignor, enforceable against Assignor in accordance with its
terms, except as limited by bankruptcy, insolvency or other laws of general
application relating to the enforcement of creditors' rights.
(f) Assignor has not incurred any obligation or liability, contingent
or otherwise, for brokers' or finders' fees in respect of the matters
provided for in this Assignment, and , if any such obligation or liability
exists, it shall be the sole obligation of Assignor, and Assignee shall
have no responsibility therefor.
-2-
<PAGE>
(g) The representations and warranties of Assignor made in this
Assignment or in any other document referred to herein and delivered or to
be delivered by Assignor pursuant hereto do not contain and will not
contain any untrue statements of a material fact or omit to state a
material fact necessary in order to make the statements herein or therein,
in light of the circumstances under which they were made, not misleading,
and Assignor is unaware of any allegations, demands or notices, oral or
written, from any of the lessors of the Leases regarding the validity of
the Leases, and there are no other material facts or circumstances known to
Assignor that may affect the ownership or validity of Assignor's title to
the Properties that are not disclosed herein.
5. Assignee represents and warrants to Assignor that:
(a) Assignee is duly incorporated and existing under the laws of the
State of Kansas and is duly authorized and qualified to transact business
in the State of Colorado; all franchise taxes due from Assignee have been
paid; Assignee is in good standing in each such jurisdiction; and Assignee
has all requisite power and authority, corporate or otherwise, to conduct
its business and to own the Properties .
(b) Assignee has all requisite power and authority to execute and
deliver, and to perform all its obligations under, this Assignment and all
other documents and instruments executed in connection herewith, and the
execution and delivery by Assignee of this Assignment and all other
documents contemplated hereby or referred to herein, and the performance by
Assignee of the promises, covenants and agreements herein made by Assignee,
will not be in violation of its charter, by-laws or any agreement or
indenture to which it is subject or by which it is bound.
(c) The execution and delivery by Assignee of this Assignment and all
other documents contemplated hereby or referred to herein have been duly
authorized by all necessary corporate action and do not and will not: (I)
require any consent or approval of any of its stockholders, (ii) violate
its charter or by-laws, or (iii) violate provisions of any law, rule,
regulation, order, writ, judgment, injunction, decree, determination or
award presently in effect having applicability to it.
(d) No authorization, consent, approval, license, exemption of or
filing or registration with any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign,
is or will be necessary to the valid execution, delivery or performance by
Assignee of this Assignment or any other document contemplated hereby or
referred to herein, other than approval by the Bureau of Land Management of
the assignment of the Federal Oil and Gas Lease.
(e) This Assignment constitutes the legal, valid and binding
obligation of Assignee, enforceable against Assignee in accordance with its
terms, except as limited by bankruptcy, insolvency or other laws of general
application relating to the enforcement of creditors' rights.
(f) Assignee has not incurred any obligation or liability, contingent
or otherwise, for brokers' or finders' fees in respect of the matters
provided for in this Assignment, and , if any such obligation or liability
exists, it shall be the sole obligation of Assignee, and Assignor shall
have no responsibility therefor.
-3-
<PAGE>
(g) The representations and warranties of Assignee made in this
Assignment or in any other document referred to herein an delivered or to
be delivered by Assignee pursuant hereto do not contain and will not
contain any untrue statements of a material fact or omit to state a
material fact necessary in order to make the statements herein or therein,
in light of the circumstances under which they were made, not misleading.
6. Each party, at the request of the other and without further
consideration, will from time to time execute and delivery such other and
further instruments, make such cash payments, deliver such documents and
records, and do and perform such other and further acts and things as may be
necessary or appropriate to effect the purpose and intent of this Assignment,
including, but not limited to, the execution of transfer orders and title
curative instruments.
7. In connection with the Leases which are Federal Oil and Gas Leases,
assignments of record title and/or operating rights will be executed
concurrently herewith by Assignor to Assignee in sufficient counterparts to
fulfill applicable Federal statutory and regulatory requirements, and while such
assignments will be unqualified in form and will not specifically contain all of
the terms and conditions hereof, they shall be deemed to contain all of the
terms and conditions set forth herein as fully to all intents and purposes as
though the same were set forth at length in each such assignment. The interest
conveyed by such separate assignments are the same as, and not in addition to,
the interests herein conveyed.
8. This Assignment may be executed in any number of counterparts with the
same effect as if both parities had executed the same copy. Each counterpart
shall be deemed an original for all purposes and all counterparts shall together
constitute but one and the same instrument.
9. This Assignment shall be binding upon and inure to the benefit of
Assignor and Assignee and their respective successors and assigns.
EXECUTED on the dates contained in the acknowledgments of this Assignment
to be effective for all purposes as of the Effective Time.
[SEAL] AMERAC ENERGY CORPORATION, formerly
known as Wolverine Exploration Company
By /s/ Jeffrey B. Robinson
---------------------------------------
Jeffrey B. Robinson
President
ATTEST:
/s/ Mary Ann Arnold
- -----------------------
Mary Ann Arnold
Secretary
MULL DRILLING COMPANY, INC.
By /s/ Mark A. Shreve
---------------------------------------
Mark A. Shreve
President
Attest:
/s/ Gary D. Turybury
-------------------------------------------
Gary D. Turybury
Secretary
-4-
<PAGE>
STATE OF TEXAS )
------------------------
) ss.
COUNTY OF HARRIS )
-----------------------
The foregoing instrument was acknowledged before me this day of 04th day of
January, 1996, by Jeffrey B. Robinson, as President of AMERAC ENERGY
CORPORATION, formerly known as Wolverine Exploration Company, a Delaware
corporation, on behalf of the corporation.
WITNESS my hand and official seal.
My commission expires: November 28, 1998.
[SEAL]
/s/ M. A. Arnold
------------------------------
Notary Public
STATE OF KANSAS )
------------------------
) ss.
COUNTY OF SEDGWICK )
-----------------------
The foregoing instrument was acknowledged before me this 17th day of
January, 1996, by Mar A. Shreve as President of MULL DRILLING COMPANY, INC., a
Kansas corporation, on behalf of the corporation.
WITNESS my hand and official seal.
My commission expires: October 14, 1998.
/s/ Maria R. Olmstead
------------------------------
Notary Public
Maria R. Olmstead
[SEAL]
-5-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
12/31/95 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 144,000
<SECURITIES> 0
<RECEIVABLES> 2,109,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,253,000
<PP&E> 20,961,000
<DEPRECIATION> (12,020,000)
<TOTAL-ASSETS> 11,194,000
<CURRENT-LIABILITIES> 606,000
<BONDS> 4,594,000
0
1,031,000
<COMMON> 1,786,000
<OTHER-SE> 3,177,000
<TOTAL-LIABILITY-AND-EQUITY> 11,194,000
<SALES> 4,328,000
<TOTAL-REVENUES> 5,252,000
<CGS> 3,040,000
<TOTAL-COSTS> 3,040,000
<OTHER-EXPENSES> 1,767,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 237,000
<INCOME-PRETAX> 208,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 208,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 208,000
<EPS-PRIMARY> (.030)
<EPS-DILUTED> (.030)
</TABLE>
